Coming soon: flight of the associates?

Here’s a theory, advanced over drinks one night recently by an executive at top 20 firm:

Before the boom, partners at leading City firms earned good money — let’s say around £400,000 — enough to pay off the mortgage on a nice house in the commuter belt, put their children through private school, perhaps even buy a holiday home somewhere. Then, five or six years ago, profits at many firms began going through the roof. Partners found themselves earning more money than they ever dreamt.

What do you do with more money than you need? You invest it so you can retire early. But just as they’re beginning to think about putting their feet up, along comes the recession of all recessions and wipes out their investments. Now, instead of retiring in a year or two, partners have to continue working in order to replenish their pension pot.

All those equity points that would’ve been relinquished back into the mix for the younger generation of partners are now being held on to. That means firms either have to kick out the more senior partners in order to move them on (happening at some firms), dilute their profitability in order to let the youngsters move up (not happening much because they need to keep their profits as high as possible in a declining market) or hold senior associates back a few years.

What does this do to senior associates who were just a few years ago seeing colleagues promoted at six or seven years PQE and may now have to wait until ten years PQE? And who have seen a large number of colleagues sacrificed in redundancies? As soon as the market picks up, we could see a number of frustrated senior associates running to headhunters. Will there be a corresponding number of ambitious firms prepared to invest in young talent? If so, we’ll see a stampede of lateral moves just below partner level.

Any thoughts on this? Leave a comment below or e-mail me at alex.spence@thetimes.co.uk if you want to talk privately.

Comments

[Jon]

The legal profession lags the real economy, lets say by a year or so. The real economy is still in recession and many companies are declaring insolvency which is currently providing the legal profession with fees. To say "we could see a number of frustrated senior associates running to headhunters" is possible, but the head hunters, on a statistical 'overall' basis, simply will not be able to find them jobs. The entire profession will have to contract before the recovery phase could ever be hoped to truely begin.