Freshfields' pay round: market-leading again in many senses

Well, the 2010 pay round for City assistants has largely already been set, and we didn't even make it out of February. That is because Freshfields Bruckhaus Deringer - having quite rightly led the market in early 2009 by halting its assistant lockstep - last week decided to restart the track. And it will be very surprising if this policy is not widely adopted by rivals in the spring when most firms get around making a decision on assistant pay.

Of course, even restarting the track means Freshfields has effectively taken a step out of the ladder, ushering in a lower entry level salary of £59,000, against its pre-recession rate of £66,000.

This resets the market to a substantial degree, returning remuneration for City assistants to 2006 levels, or arguably more like 2000 in real terms once you account for inflation.

That decision had not come without its cost. Last year's move went down like a lead balloon with a gas bill attached to it among Freshfields assistants, even though the firm was rare among large City practices in not making formal redundancies in any serious numbers. Nor was the firm's policy of running a drum-tight leverage popular, as it meant that assistants in many practice areas were still putting in heavy hours despite the gloomy state of the market.

This resentment was fuelled further by the fact that a strong first-half performance in 2008-09 meant that Freshfields maintained profitability and top-line performance even as it opted for a full pay freeze for assistants. But the reality was that activity levels had sharply dropped by early 2009 and the outlook back then indicated clearly that the market would not be recovering any time soon, added to which there was pressure from clients for a symbolic move to control lawyer salaries.

That equation will now reverse as Freshfields restarts the associate track in a year in which its revenues and partner profits are expected to see significant declines. While visibility remains limited, current estimates are that fee income could be down as much as 10% against last year, when the firm posted total revenues of £1.287bn. That should go a fair way towards improving the mood internally.

And for Freshfields the fundamentals of its business look very solid. The firm has slashed its cost base without resorting to heavy job cuts. In addition, its partnership has continued to be cohesive, proactive and effective at bringing in what business there is out there. The firm has had its share of luck - getting its partnership restructuring out of the way during the boom was perhaps fortunate - but Freshfields has looked tightly managed and purposeful as well.

This latest decision is another example of that pragmatism. Despite a few bumps and scraps, Freshfields is one of a handful of major law firms looking set to exit the recession in a stronger position than it went in.

Freshfields Bruckhaus Deringer on the Legal Week Wiki