Allen & Overy downgrades Germany partners in lockstep shake-up

Allen & Overy (A&O) has moved a number of German partners down its lockstep, with the firm also making it more difficult for those in the country to move beyond 40 points on its 50-point ladder.

The magic circle firm has moved down or frozen about 50% of its German partners in a bid to improve profitability, with only a handful of the firm’s 51 German partners now understood to be sitting above 40 points.

One former partner told Legal Week there are now two German partners sitting above 40 points, with a current partner suggesting both are at the top of the lockstep.

While partners at all levels have been affected by the change, it is not known how many have been moved down and how many have seen their position frozen.

Before the equity management, which took place from 1 May, it is understood that there were around six partners sitting above 40 points on the ladder.

The news comes after A&O looked at introducing a formal 40-point cap in Germany, before dropping the measure as a result of “resistance” from partners, according to sources. The firm, which previously denied making any changes to its lockstep in Germany, already has caps in place in some local offices, according to partners. They suggest that most partners in the Netherlands and Belgium are capped at a lower rate.

Instead it chose to manage individual partners’ profit share, with one partner stating that from now on German partners will only be able to move above 40 points in “special circumstances”.

Another current partner said: “If it’s easy for a partner to generate more than they can take then that’s fine, but if they are working in a jurisdiction where that’s harder to do they will need to monitor their takings. It’s nothing unexpected.”

As the magic circle firms continue the battle to hire and retrain star partners against competition from the US, A&O introduced a bonus pool for star performers in 2014 and broke lockstep to hire a number of finance partners in New York last year. Its standard ladder runs from 20-50 points, taking 15 years to reach the plateau.

A&O is not alone in putting German partners under scrutiny. In late 2015, Legal Week reported that Freshfields Bruckhaus Deringer was cracking down on partner performance in Germany as part of a global drive to boost firmwide profitability, with partners in the country set to see their profit share reduced as they were moved to a lower ladder.

Earlier this year, it emerged that Clifford Chance Germany partners were among those facing cuts to the lockstep plateau in a number of the firm’s offices around the world.

A&O declined to comment.