Allen & Overy boosts partner capital and freezes salaries, Reed Smith slows distributions
Duo follow on heels of listed UK firms in revealing aspects of their business planning in face of crisis
Allen & Overy is freezing salaries, deferring some scheduled bonus payments and increasing partner capital levels as part of a series of measures to shore up its finances in the face of the Covid-19 pandemic.
The UK magic circle firm says the prudent measures, which also include "adjustments" to partner profit distributions, are being taken as part of its ongoing scenario planning.
The move comes on the same day that Reed Smith has revealed a slowing of partner cash distributions while yesterday Above the Law reported that Womble Bond Dickinson's US arm had implemented associate layoffs, employee furloughs and cuts to lawyer compensation.
They join a slew of listed law UK firms, including top 50 firms Gateley and DWF, in providing details of the measures they are taking in response to the crisis.
Last week, Knights revealed that it is reducing board members’ salaries by 30% and those of all employees earning more than £30,000 annually by 10% from 1 April while DWF said it was negotiating additional credit on top of its £80m revolving credit facility to secure ‘increased headroom for working capital purposes’.
The package of measures revealed by A&O includes “adjustments to the phasing of profit distribution to partners, increasing partner capital levels, deferring certain investments and recruitment, and cancelling events”.
Annual salary reviews for staff, including fee earners, will not take place in the first quarter of the 2020/21 financial year as normal; bonuses for the current financial year, however, will be paid with “bonus payments for fee-earners and our more senior support staff split between our normal payment date in July and October’s payroll”.
“A&O retains good diversification across practices and one of the broadest international offerings among the global elite firms, so we are confident in our resilience if economic conditions worsen,” the firm said.
Reed Smith dubbed its decision to slow partner cash distributions in the near term a prudent one given the current uncertainty although the firm said it was currently “performing on plan through the first three months of 2020”.
“Many of our practices are exceptionally busy right now,” it said in a statement. “At the same time, we know businesses around the world are bracing for the short-term and potential long-term economic impacts of Covid-19, and we are taking a fiscally conservative yet responsible approach.”
According to Legal Business magazine, monthly drawings will be reduced by 40% for full equity partners and 15% for fixed share partners.
In a statement, Womble Bond Dickinson said it had "made the hard decision to furlough some selected employees and let go another small group".
It added: "In addition, we are temporarily instituting a 10% or less pay reduction (with lower levels of compensation reduced by smaller percentages) for our remaining staff and attorneys in this group."
Further reading on the Covid-19 pandemic