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Tipping the scales to attract talent - Share Schemes for Solicitors

Posted on September 14, 2012

The carrot for ambitious, hard-working lawyers has always been partnership. Being made a partner promised status, a share of the profits and influence. For some, however, the lure of partnership has lost its appeal.

In August [2012], a survey by recruiter Laurence Simons found that one in three lawyers thought their careers had been stifled. This frustration seems to be down to older partners not retiring and too many lawyers chasing fewer opportunities. These disgruntled lawyers will now be considering their career alternatives. Some of them will set up their own firms, creating more entrepreneurial practices.

Might share schemes provide a solution for these firms or will competitors get there first? For example, Alternative Business Structures (ABS) will have equity available for new hires. Also, firms incorporating will be another alternative for those lawyers who want a stake in the business.

So what is ABS and how might this tip the balance? Well, ABS is a new form of legal practice that can provide reserved legal activities to the public and, compared to a traditional law firm, ABS practices are more flexible. Crucially, perhaps, ABS entities are, unlike non-ABS law firms, able to have non-lawyers sharing in the management, control and ownership of the business and can offer multidisciplinary services to clients.

Many professional practice firms who can now operate as limited companies are now choosing this structure for their business when they first start-up. Those who started out as LLPs, or who converted to LLPs from unlimited partnerships, are now starting to convert to limited companies. The reasons for incorporating, ABS aside, are often the basic tax reasons; the principle reason being that the tax rates on profits are lower, owner managers can control their tax charge in relation to remuneration and dividends drawn and many tax reliefs are only available to companies e.g: R&D tax credits, Patent Box, indexation on gains. The ability to make use of flexible equity incentives using shares is also another reason.

Early adopters of ABS are therefore likely to have first mover advantage over their competitors in winning work in a market where more and more clients value an end to end service and an advisor who doesn't just address the legal fine print but can also provide experienced and pragmatic business advice in relation to ancillary matters. ABS firms are likely to look to recruit accountants, tax advisers and management consultants to provide this more holistic client service. Some of the non-lawyers that ABS firms will be courting will be more familiar with limited companies as a framework for their employment and reward and as such this naturally leads on to a consideration of equity and share schemes.

Wider share ownership has been shown in the UK and US to have a galvanising effect on the whole firm. Last month, top 10 law firm Eversheds said it was exploring a scheme which could give all staff a share in the profits. This is part of the firm's longer term strategy with the objective of boosting staff engagement.

The types of share schemes that a progressive incorporated legal services business might consider are the Company Share Option Plan (CSOP) for discretionary awards, a Share Incentive Plan (SIP) for larger practices where all employees are to share in ownership and/or a Deferred Share Purchase Plan (DSPP) for top-up awards to senior lawyers for whom the £30,000 CSOP limit would be insufficient. Legal Services is one of the excluded trading activities under the Enterprise Management Incentives legislation so sadly that employee share scheme is not available to this business sector.

New entrepreneurial boutique law firms are springing up fast and, if they can attract and retain the right talent, they could give the more established firms a good run for their money. With the right share plan in place they will then appear an attractive potential home to those senior lawyers disenchanted by the traditional lockstep models. The share option offer should also prove an effective lure to tempt younger talent who might otherwise view a step out of an established practice to a formative years practice as a risky career move.

If you'd like to explore the possibilities before your competitors, please call Liam Liddy or Liz Hunter on 020 8949 5522.

 
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