Madeleine Farman assesses the impact of another round of pay rises on the City market
As US firms continue to hike associate pay for UK lawyers, members of the City’s legal elite are getting increasingly coy over what they are offering their junior ranks… but are such tactics sustainable in the long run?
Allen & Overy (A&O) is the latest firm to keep its associate salaries under wraps, but the firm is understood to have enlarged its bonus pool for associates this year, according to one A&O partner. The firm was expected to announce its trainee and newly-qualified (NQ) pay bands in September.
The last time the Magic Circle firm publicly announced its associate pay scale was 2015, when it incorporated bonuses into the annual pay packet. The move saw NQs receiving £12,000 more at £78,500. One year post-qualification experience (PQE) associates saw wages increase from £72,500 to £92,000 with two-year PQE lawyers receiving £104,500, up from £82,500.
In June it emerged that Clifford Chance (CC) had brought its junior lawyersʼ base rate pay up to match the UKʼs 2.7% jump in inflation, which for a NQ base rate of £85,000 would suggest increases of around £2,000 for junior associates. But the firm has continued to decline to comment, confirm or deny any specific figures.
Linklaters’ associates saw a modest bump in pay with NQs earning £1,000 more, to take home £82,000. Junior lawyers can now earn a total package of £90,000 including bonuses. However, Linklaters has not confirmed the new packages for PQE solicitors in 2017/18 beyond NQ level.
Meanwhile, Freshfields Bruckhaus Deringer has frozen its associate pay bands for 2017 following a substantial increase to associate salaries last year. The firm’s London managing partner Julian Long said the firm has ‘continued to review our competitive position, which, in terms of total compensation, remains strong in the marketʼ. In 2016 NQ associates at the firm saw their pay boosted by 26%, from £67,500 to £85,000. The increase included the rolling in of bonuses, though overall compensation was also increased.
‘US firms are in long-term growth mode in London, creating opportunities for everyone in those firms.’
James Roome,
Akin Gump Strauss Hauer & Feld
In a similar move Slaughter and May boosted associate base salaries by 10% as of 1 January 2017. NQ pay increased 9% to £78,000, while one-year PQE salaries rose 10% to £87,000. In June the firm opted to hold associate pay bands for the coming year.
The lack of transparency in associate pay in part illustrates the slow erosion of associate lockstep, where law firms have moved towards more flexible models to channel higher rewards to their strongest mid-level associates. But it also reflects attempts to obscure the yawning 20-30% pay gap with key US rivals at a time when American law firms have never been a more potent attraction for clients and young City lawyers.
One London head of a US firm tells Legal Business: ‘I’m quite surprised because when you’re in a competitive market, you try to compete hard and you don’t want to keep it a secret. They’re going to have to tell people what they earn. As far as we’re concerned, I couldn’t be more delighted because you’ll have our [associate pay figures].’
Kirkland & Ellis, for example, is offering its NQ London lawyers $180,000 a year, reflecting base rates at leading US law firms. The firm’s London currency conversion is set by a spot rate at the end of each calendar month. Akin Gump Strauss Hauer & Feld, which also pays its London-based NQs $180,000, uses a quarterly spot rate.
‘It is very competitive at the top end of the legal world, particularly the competition for the best talent,’ notes Akin Gump London head James Roome. ‘The US firms are in a long-term growth mode in London. We’re looking to grow at rates higher than the large English firms expect to. That obviously creates opportunities for everyone who works in those firms.’
Even US firms that would once not have been the most generous recruiters, such as White & Case and Shearman & Sterling, are now offering packages well beyond that of equivalent deals at the Magic Circle, with both firms this spring pushing through double-digit percentage rises in associate compensation.
White & Case gave its City NQs a 17% pay rise this year, hiking salaries to £105,000, the same rate as Shearman. White & Case London executive partner Oliver Brettle argues that its large London office is a huge advantage in the war for talent.
‘When people look at White & Case, they don’t just see the headline salary figure; they also look at the fact that we’re a full-service law firm in London. If they are applying when they’re trainees they look at the overseas seats – we offer everyone six months overseas as part of their training contract – they look at the bonus opportunity.
‘They also look at the way we have professional support lawyers, business development support and, very importantly, very good partnership promotion prospects.’
One veteran recruiter warns that US firms’ continued growth in London should be a concern to UK firms: ‘The Magic Circle firms used to trade on this idea that American firms are all the same, they’re all awful. That mystique has now gone because they have enough of the associates’ mates who have gone to Latham & Watkins who say: “Hang on, I’m doing as good a work if not better work at this place and being paid 50% more.”’