Lockstep Agreement

Many high-level organizations, including Magic Circle Linklaters and Slaughter and May, have continued to use a Lockstep model, believing that its benefits far outweigh the disadvantages of a company`s overall performance and long-term health. Especially since the financial crisis of the late 2000s, which increased pressure on business lawyers and their clients, some companies have amended their lockstep agreements to include an element of performance-related compensation. „The market pressure is definitely reflected,“ Hanh says. „Companies need to pay attention to what their competitors are doing. Increasing competition in London, for example, from U.S. companies that want to reward individual performance and have influenced the approach of some companies. For a company with a large element of business-specific intellectual capital, the profit-sharing or lockstep system has some significant potential benefits. The main advantage is to offer excellent diversification and strengthen a culture in which clients are seen as strong customers and in which teamwork is effective. For the purposes of this article, we assumed that Plateau partners have 100 points and that an incoming partner is awarded an initial participation of points, the number of which varies according to three key criteria. These three key criteria for determining the initial number of points are the ratio between the highest-paid partner and the „newly approved“ partner, the number of steps from the entry point to the board, and the proportional increase in movement from one stage to the next.

These three elements determine the „shape“ of the lockstep. In general, the initial allocation of points should represent a marked, but not necessarily dramatic, improvement for the partner who arrives from his or her current salary as an associate or stable partner. An old and outdated rule of thumb was that the top-down ratio on a lockstep would be about two to one and that an initial allocation of 50 points was therefore not uncommon. However, given that corporate profitability positions have become polarized between the very wealthy leading commercial enterprises and the struggling high-street companies on the other hand, the basic ratio (capitals?) has also become polarized. In some companies, this ratio is now more than three to one, while at the other end, the space for any gap between the top and bottom can be very small. As noted above, the value of each point is generally calculated by aggregating the number of points involved and by deifying the company`s net profit by that number of points. For example, if a company pays the equivalent of 60 points to its senior managers or salaried partners, there is not much room for manoeuvre. In this case, the paid partner would probably expect a profit of at least 70 points if he were an equity partner.