In a surprise twist in the Magic Circle pay war saga, Allen & Overy (A&O) has frozen its associate salaries citing a ‘more challenging business environment.’
The firm typically reviews pay in the summer, but A&O has decided this year to pre-empt any salary-increasing brinksmanship and freeze its rates.
A firm spokesperson said: ‘After careful consideration and consultation we have decided not to increase the London NQ salary at this time. It was last increased in November 2021, to £107,500. This is a prudent decision based on a number of factors, including the more challenging business environment. We will keep the situation under review.’
In November, A&O matched Linklaters’ £107,500 NQ salary, with both firms representing the bottom end of the Magic Circle’s remuneration. Clifford Chance (CC) on the other hand announced in May that it would be hiking its NQ pay by 16% to £125,000 to match that of Freshfields Bruckhaus Deringer.
Slaughter and May meanwhile is remunerating its novice lawyers to the tune of £115,000.
According to data gathered by Simon Marshall at TBD Marketing, A&O may have been emboldened by the fact that it currently receives the most applications per job of all the Magic Circle firms. Likewise, the firm has grown by 317 people over the past six months – equivalent to adding a Winkworth Sherwood-sized firm to its numbers. It is now only 89 employees away from matching CC’s overall staff headcount.
Marshall commented: ‘A&O is calling the market here by refusing to budge on NQ salaries. They’re having to balance a load of things at the same time: the possibility that US firms will ramp up again and attract more of their talent, the fact that in-housers have had enough of NQ rates spiralling upwards, its own pipeline and the broader macroeconomic picture.
‘Its first mover advantage is that it can always change its mind later, of course. In years gone by, we’d see Linklaters move first on something like this, so it’s refreshing to see A&O take the reins.’
The top end Magic Circle rate of £125,000 pales in comparison to the eye-watering figures touted by US firms this year. Akin Gump tops the list, having announced a new rate of £164,000 in April, ahead of Gibson Dunn (£161,700), Goodwin (£161,500), Davis Polk and Fried Frank (both £160,000).
A&O’s move is certainly a brave one, and while there is an obvious risk in terms of talent recruitment, the news will be welcomed by beleaguered in-house leaders, who have persistently protested the rapidly increasing charge-out rates associated with such bloated NQ pay. With the backdrop of global uncertainty triggered by the Ukraine crisis, all eyes will be on whether other elite firms will join A&O behind its line in the sand.