Year-end accounts are out for a number of law firms and there's a lot of back-patting going on for the increases in profit per equity partner (PEP)
This is just one article, Birmingham Post, but there are many others. Just search under "profit per equity partner" and you'll see what I mean.
Here's what the papers and legal websites are saying:
"Equity law partners are earning more than ever and the indicator of success is the PEP which rose sharply against decllines in revenue"
Some commentators are even stating that the recession is over, things are back to where they were and let's crack open the Bolly. ( ok, not that last bit)
If you happen to be an equity partner...great...but before we all start getting carried away, can we maybe look behind these figures for a second?
Look at the words used.
I'm a great fan of "Freakonomics" and the hidden side of everything and I know
from experience that nothing is ever as it seems.
First of all, "...the PEP rose sharply ..." I like that word "sharply".
It indicates a sudden, massive spike. Not a long, slow gradual, organic growth, but a shooting upwards trajectory.
A hockey-stick movement as some would say.
From the journalists point of view, "sharply" is a great and well-used word. The fact that they probably got it from a press-release is neither here nor there; it's a word of meaning, it's a positive word when talking about accounts or at least the profitable side of things. It's liked.
Next " ...against declines in revenues...". So when measured against a decline in revenue, PEP rose sharply.
Turnover down, profits per equity partner up. Hooray!
So the owners of the firms are rewared.
Rewarded for what exactly?
Was it providing a better service? No, because revenues would have been up if that was the case.
Was it for working harder? No, because a drop in revenues usually indicates not as much work as before and therefore a bit more time to spare.
The way that profit was increased was as a result of lower costs.
So how were costs reduced so dramatically?
In the UK top 200 firms, the total number of law firm redundancies to April 2010 was 4,263 or an average of 70 per firm
According to Work Hound, the average salary for a UK lawyer in Sept 2009
was £70,000
That means that the average law firm in the top 200 saved £4.9m in salaries plus a further £630,000 in employer NI contributions or a total of £5.53m plus whatever other perks and associated payments they would have made.
So when a firm states that they are handing out bonuses (an average of £1,000 BTW - very big of them) it's not so much a bonus as a survivors premium.
The bonuses may make the equity partners feel good, because they need something to balance out the pain of the redundancies....but that's not the main issue nor the purpose of this blawg posting.
(It's not? - Ed)
No. My question is, what happens next year?
Most of the financial year ends have been April, June and July. But the fall in revenues is still happening.
Will PEP still be regarded as an indicator of success this time next year?
What about a true indicator of success? What about what the customers think?
Rather than PEP lets measure other things that directly affect the customers
such as turnaround time, satisfaction levels and the value gap.
That seems to me to be more sustainable than PEP.
This is just one article, Birmingham Post, but there are many others. Just search under "profit per equity partner" and you'll see what I mean.
Here's what the papers and legal websites are saying:
"Equity law partners are earning more than ever and the indicator of success is the PEP which rose sharply against decllines in revenue"
Some commentators are even stating that the recession is over, things are back to where they were and let's crack open the Bolly. ( ok, not that last bit)
If you happen to be an equity partner...great...but before we all start getting carried away, can we maybe look behind these figures for a second?
Look at the words used.
I'm a great fan of "Freakonomics" and the hidden side of everything and I know
from experience that nothing is ever as it seems.
First of all, "...the PEP rose sharply ..." I like that word "sharply".
It indicates a sudden, massive spike. Not a long, slow gradual, organic growth, but a shooting upwards trajectory.
A hockey-stick movement as some would say.
From the journalists point of view, "sharply" is a great and well-used word. The fact that they probably got it from a press-release is neither here nor there; it's a word of meaning, it's a positive word when talking about accounts or at least the profitable side of things. It's liked.
Next " ...against declines in revenues...". So when measured against a decline in revenue, PEP rose sharply.
Turnover down, profits per equity partner up. Hooray!
So the owners of the firms are rewared.
Rewarded for what exactly?
Was it providing a better service? No, because revenues would have been up if that was the case.
Was it for working harder? No, because a drop in revenues usually indicates not as much work as before and therefore a bit more time to spare.
The way that profit was increased was as a result of lower costs.
So how were costs reduced so dramatically?
In the UK top 200 firms, the total number of law firm redundancies to April 2010 was 4,263 or an average of 70 per firm
According to Work Hound, the average salary for a UK lawyer in Sept 2009
was £70,000
That means that the average law firm in the top 200 saved £4.9m in salaries plus a further £630,000 in employer NI contributions or a total of £5.53m plus whatever other perks and associated payments they would have made.
So when a firm states that they are handing out bonuses (an average of £1,000 BTW - very big of them) it's not so much a bonus as a survivors premium.
The bonuses may make the equity partners feel good, because they need something to balance out the pain of the redundancies....but that's not the main issue nor the purpose of this blawg posting.
(It's not? - Ed)
No. My question is, what happens next year?
Most of the financial year ends have been April, June and July. But the fall in revenues is still happening.
Will PEP still be regarded as an indicator of success this time next year?
What about a true indicator of success? What about what the customers think?
Rather than PEP lets measure other things that directly affect the customers
such as turnaround time, satisfaction levels and the value gap.
That seems to me to be more sustainable than PEP.
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