Holding Redlich has implemented a plan to upgrade salaried partners to equity partnership, managing partner Chris Lovell has revealed to ALB.
"When we looked at all the real high performance firms, it was pretty clear that a lot of those firms - not all, but virtually all - were fully equitised," said Lovell. "We thought that if everybody was in the same position and their fortunes rose and fell with the firm, then it would encourage people to be more proprietorial - realise the importance of quality work, of debtors and collections and so on."
Previously, the Holding Redlich partnership was only 50% equitised but the firm now boasts an 80% equity partnership. The remaining 20% of the partnership is comprised of partners who have not opted to take equity and new internally promoted partners, who will need to complete two years as partners to qualify for equity.
The partnership agreed in principle to this move 18 months ago and had been waiting for an appropriate time since then for implementation. "It costs money and we had to wait for a time at which we thought the firm could bear the cost," said Lovell. "We're pretty convinced this year will allow us to do that. We've had a very good last six months." Holding Redlich recorded 10% revenue growth for FY2011.
Interestingly, the plan was approved unanimously by the existing partnership. "We all agreed this was a desirable to do," said Lovell. "It was unanimous. No one's bailed, no one has left because they didn't like the idea."
The firm calculates that 2012 profit per equity partner will be higher than that in 2011 because of revenue growth, although the current equity partners will have to bear some of the cost of the equitisation. "The existing equity partners will contribute a bit to the cost of bringing in the new partners - just to get the [new equity partners] to the same level of take home income required us to actually pay them more money and of course we wanted them to do better than that," said Lovell. These costs include tax costs and underwriting bank loans so that new partners could make their capital contribution upon entering the partnership.
The other side of the equation is that the firm has also successfully reduced its operating costs. "It is amazing when you grow, you get costs creeping in that you don't really need," said Lovell. "About two years we looked at cost and got our costs down quite significantly without making any real visible difference."