The NQ Associate Battleground
UK law firms are risking future growth prospects with their mounting pay for associates, according to a report in BloombergLaw, quoting various law firm recruiters and others on the London pay battleground that we have been reporting on for some months.
The pay rises in recent months have been significant: Linklaters increased pay by 20 percent, joining a similar increase from Freshfields.
Linklaters last week matched a 20 percent pay raise by Freshfields for newly-qualified lawyers, boosting their salaries to £150,000 ($188,000).
The increases for the Magic Circle firms come at a time when they are working hard – and spending a lot – to grow their US footprint, facing off against their better-heeled US big law competitors.
And those competitors are also continuing to increase their involvement in the London legal market with Perkins Coie being the latest major US firm to move into the City.
“For a UK law firm to do this in a market, where it’s just harder to make money, that’s a hell of a statement,” legal consultant Scott Gibson told BloombergLaw. “It’s going to cost them.”
“As is the case among US firms, the first-year pay rate is often used as a proxy for quality of the law firm,” Gibson said. “Right now, there isn’t a marketplace for such lawyers, so firms are subsidizing that rate…It can only really be for prestige.”
The Cravath Scale Pay Gap
The new salaries help close the pay gap with US firms like Cravath, which pay $225,000 to fresh recruits.
We have frequently reported on the ‘Cravath Scale’ and the pressure it piles on the biglaw firms to compete with the payments set by the US-based law firms.
For elite UK players, the raises are harder to absorb than US competitors with their higher revenues and rates.
“It’s just easier to make money in the American marketplace because clients will bear higher rates,” Gibson said. The UK pay hikes will likely fuel demands for higher compensation from more senior associates as well.
“You can’t have a newly qualified lawyer being paid £150,000 and have a fourth-year make £160,000—it just doesn’t work,” said recruiter Chris Clark. Raising associate bonuses is one option, though “a headache” given the need to revise established bonus structures.
NQ Salary War
The NQ salary battle also risks further stratifying the UK market, placing pressure on the lower-ranked law firms to keep pace with the eye-watering raises being handed out in The City.
The second and third tier firms need to be clear about their value proposition and workplace culture to attract or retain top quality legal talent, rather than engaging in salary wars that do few of them any good.
As Gibson noted in the Bloomberg report, the salary hikes become fixed costs for the law firms paying them and come when the UK firms are having to deal with major investments to expand into the US, which will create issues of their own.
The chances of losing more legal talent will also continue to increase with the money-factor being central to the lateral hiring moves.
The salary-raise poker game is far from over. “I don’t think it’ll be long before the US firms come out and just raise [pay] again,” Clark predicted. “They like to normally have about 30 percent to 40 percent difference in the entry points and now, that’s getting slimmer.”
