Partners at Hammonds will have to justify their six-figure pay packets after voting for radical changes to the law firm's structure.

A "system of remuneration and reward based more closely on partner performance" is one of a number of measures designed to put the firm back on the road to recovery.

Others include a cut from eight departments to four, a new manage-ment structure and the appointment of a non-executive chairman.

Last year, the 94 equity partners at Hammonds were told they would have to repay £3.5 million - around £37,000 each.

It followed a write-off of fees to the then Customs & Excise and coincided with a delayed audit, a string of part-ners quitting, 60 redundancies including 16 in Birmingham and the announcement of a strategic review.

Equity partners were prevailed on to accept a so-called lock-in where they agreed to stick with the firm until July.

Hammonds, whose Birmingham office has 240 staff including 147 fee earners, changed its auditors to Price-waterhouseCoopers. After PwC completed a probe into the books, it recommended changes to the 2003-04 draft accounts that left a net shortfall of £8.1 million - the result of insufficient debt and work in progress provisions along with a decision not to go through with proposed accounting changes.

That meant partners having to repay a further £86,170 each.

Many of the problems were blamed on rapid expansion.

The firm had gone through a series of mergers in the UK and established a string of European operations - a strategy it still believes to be correct.

Hammonds had had two poor years of trading which in 2004/5 saw profits per partner fall 25 per cent to £204,000, though turnover was slightly up at £127 million.

Now the strategy review has been approved by partners.

It is the result of interviews with over 100 partners, and 250 current and potential clients. The process, which was assisted by consultants, has four main recommendations. These include a refocusing of the firm on particular segments, with departments cut from eight to four - corporate strategy and finance, real estate, commercial and dispute resolution and human capital.

A new management structure to include a non-executive chairman to replace the role of senior partner will also be implemented in the next few weeks.

In addition, there will be a move towards a system of remuneration and reward based more closely on partner performance.

Peter Crossley, managing partner, said: "This has been a root-and-branch review of the firm's strategy with no stone left unturned.

"The vote shows that the partners agree with the results of the review and are keen to implement the changes and continue the firm's remarkable recovery.

"I am excited by the opportunities that we have and believe that we have all the ingredients to make the most of them."