Hogan Lovells Model to Maintain Two Profit Centers But Align Partner Pay


Posted on December 2, 2009 at 11:12 PM

The Hogan Lovells model will maintain separate profit pools and accounting years, even with integrated governance and remuneration.  The proposed structure for the merger between Lovells and Hogan & Hartson would have the firms maintain separate partnerships in the US and UK/international.  It would also likely include an umbrella organization, such as a Swiss verein or co-operative, to allow for firmwide governance, branding and cost-sharing.

The two firms will retain their separate accounting models: Hogan’s December year-end and cash-accounting model, and Lovells’s April year-end and accrual accounting.  While the model will have the firms maintain distinct partnerships and would block direct profit-sharing, the firms will have similar remuneration policies, with Lovells moving towards Hogan's contribution-based model for partner pay.

85% of profits for equity partners will be allocated on a points-based system, covering sustainable financial and non-financial contribution to the firm over a medium-term basis, and the points allocations will be reviewed every two years.

There would be a 15% bonus pool designed to clearly recognize short-term contribution over a 12-month period. The bonus pool, which will be awarded on the same criteria as the equity points, will also be reviewed annually.

The range of equity points has yet to be decided, but it will probably be wider than the 2:1 range used in Lovells' current partnership, a modified 10-year lockstep ranging from 30 to 60 points.

There will also be some minor changes to Hogan's current pay model.

Lovells partners will see changes being phased in over a four-year period from May 2010, with the lockstep system in place for an interim two-year period as new equity points are decided.  The one-year bonus pool could be set up by the end of 2010.

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