‘Insane’ pay rises for junior London lawyers raise concerns over culture
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Significant pay rises for the most junior London lawyers at elite firms have been criticised by rivals and clients as “insane” and unsustainable, as an improved economic outlook and a spike in dealmaking stokes the war for talent in the City again.
UK “magic circle” firms Freshfields Bruckhaus Deringer, Linklaters, Clifford Chance and A&O Shearman have all this month increased salaries by 20 per cent for newly qualified lawyers (NQs) to £150,000, while their US peers with London outposts have pushed up compensation to as much as £180,000 this year.
The move means remuneration for some firms’ most junior ranks has increased as much as 50 per cent in the past five years, raising concerns that bumper pay could result in higher expectations around the hours young lawyers should be working, affecting employee wellbeing.
“It is insane what we are allowing to happen with NQ pay,” said one managing partner of a global law firm. “I say it not from an economic perspective but true cost — the more firms are paying for NQ lawyers the less margin for error you have [with who you hire and their development].”
Pay for NQs in London has become a barometer for success in recent years as UK firms have tried to compete with the growing presence of their deeper-pocketed US rivals with City offices.
Elite US firms, such as Latham & Watkins, increasingly compete with the magic circle for corporate instructions in the UK, where mergers and acquisitions are at their highest level by value since 2018, according to Dealogic. Globally, takeovers this year have totalled $1.3tn, an increase of 23 per cent compared with the same period last year, according to data compiled by the London Stock Exchange Group. That level of dealmaking typically requires a small army of junior lawyers to help execute.
The top US firms, including Latham, pay their most junior associates $225,000 (£176,000) in the City, on a par with the salaries of their counterpart first-year associates in the US. Quinn Emanuel and Gibson Dunn have both boosted newly qualified pay in the UK capital to £180,000 this year.
According to one “magic circle” partner involved in the decision to raise pay at their firm, the increase is necessary to compete with such US peers who have been taking advantage of a favourable dollar-sterling exchange rate in recent years. The magic circle firm also wanted to be proactive rather than reactive to losing talent, the person said.
According to legal recruiters, firms are right to be nervous.
“NQ lateral movement has been the busiest I have seen in years with loyalty on qualification at a marked low,” said Nathan Peart, who runs associate hiring in Emea at legal recruiter Major, Lindsey & Africa. “Attracted by increasing salaries, particularly at US firms and others wanting to remain competitive in the market, NQs are increasingly open to looking at new opportunities on qualification.”
To become fully qualified, solicitors undertake a mandatory paid two-year work placement after law school, when they rotate between different practice areas at a firm. The hope is that the firm will retain the trainee after qualifying, which instantly results in a pay bump. Trainees at magic circle firms, for instance, earn up to £61,000.
Some US rivals, such as Quinn Emanuel, do not offer London training contracts. This adds to the pressure on magic circle firms to try and hold on to their NQs after investing in them as trainees.
Still, a growing focus on remuneration will inevitably impact firm culture, according to peers and clients. US-headquartered firms have traditionally had a reputation for paying better but demanding more billable hours from young lawyers in return. By increasing pay, the implicit message to NQs is that they must work harder.
“It concerns me that to make that work financially [constantly increasing NQ pay] these people are going to have to work extraordinarily hard. And what does that mean in terms of what you’re doing to their lives? What does that mean in terms of the quality of their work?” said Richard Price, legal and corporate affairs director at mining company Anglo American.
US firms such as Latham have an annual billable target of 1,900 hours for associates to receive their bonus, while magic circle firms are generally closer to 1,700 hours, according to headhunters. These are merely the hours that can be charged to a client for work on a matter: total working time is longer still.
When associates at one magic circle firm were told about their pay rise recently some raised concerns about whether it meant they were being asked to work more hours, according to one partner involved.
Freshfields, Linklaters, Clifford Chance, A&O Shearman, Quinn and Gibson Dunn all declined to comment on criticism of their pay rises.
Slaughter and May is the only firm in the elite UK group that hasn’t followed suit on compensation. The firm said on Friday that it was “closely monitoring” what other firms were doing with NQ pay and “considering our position”, according to an internal memo seen by the Financial Times and confirmed by Slaughters.
The firm has said previously that it reviews salaries biannually and will next look at NQ pay in November. Trainee salaries have been increased, the memo said, putting them on a par with the rest of the “magic circle”.
The pay increases may also have some unintended consequences. Two magic circle partners expressed concerns about the impact NQ pay rises could have on society’s view of the industry.
If partners are under pressure to justify higher salaries then it may also affect diversity efforts. Firms could be more reluctant to hire lawyers from less privileged backgrounds who need more time to develop, according to two partners at law firms that haven’t increased NQ compensation.
It could also make it harder to manage poor performance, according to one industry adviser. Firms rely on a certain amount of attrition from their junior ranks every year. If people are paid far more than they would get as a lawyer in-house at a corporate then it will probably make it harder to move people on.
“It doesn’t bother me personally [the escalating NQ pay], I’m more concerned about the sustainability of it and what it means for the culture of the firms,” said Anglo’s Price. “We genuinely care about the welfare of the lawyers who work for us.”
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