Editors' Blog

CC’s retirement package review could prove a hot potato

Posted 10/08/2007 by Deal Comment

One of the downsides for a firm the size of Clifford Chance (CC) size is that discussing weighty matters like making changes to the partnership deed can take an awfully long time.

Perhaps this goes some way to explaining why CC is still deciding whether its early retirement arrangements for partners should be amended in light of age discrimination legislation that came into force almost a year ago and had been long-expected before then.

Oh, and the fact that the consultation centres on the hot potato subject of partner annuities – in particular the ‘soft-landing’ paid to partners to take early retirement.

Currently, at the age of 55, CC partners can typically retire and take 25% of plateau profits until they are 60 years old. The payments are structured so that a partner retiring at 56 would get four years of payments and at 57 would get three years worth of payments and so on. The firm is looking at whether it needs to substitute the reference to age for ‘length of service’.

Generous arrangements for retiring partners represent, of course, an issue that has hit the headlines for magic circle rival Freshfields Bruckhaus Deringer in the last year, in its age discrimination dispute with former partner Peter Bloxham.

And you only have to glance at what is happening to the partnership and benefit terms at many leading firms to see that balancing the interests of older and retiring partners with firms’ need to motivate younger partners in a brutally-competitive City market is a thorny issue.

Admittedly the sums involved here are not the same as with Freshfields as CC discontinued its full pension for partners years ago. But CC will be keen to avoid the kind of fall-out Freshfields has suffered from as a result of the changes. Presumably this is why partners at the firm are saying it will work hard to make sure partners don’t feel short-changed.

Then again, some would argue it would be no bad thing for CC to upset a few people and use the review as a tool to ease out under-performing partners. Likewise, some outside the firm have claimed the review could also provide a chance to further cut costs from what is a very generous package.

However, these suggestions are strenuously denied by CC, which argues that adapting the package in light of discrimination laws could well be more expensive.

CC says it has already cut some costs relating to the package. The arrangements, closed to new partners after 2005, were ‘capped’ around then too, so they are no longer paid out purely by reference to profit. However, a number of rivals, convinced that CC is limbering up for a new round of belt-tightening, will be keeping a close eye on exactly what is taking so long.

caroline.grimshaw@legalweek.com