A major pay rise for London’s youngest lawyers at elite firms has been criticized by rivals and clients as “insane” and unsustainable, as a better economic outlook and a surge in business reignite the war for talent in the City.
British “magic circle” firms Freshfields Bruckhaus Deringer, Linklaters, Clifford Chance and A&O Shearman this month increased the salaries of newly qualified lawyers by 20 per cent. [NQs] to £150,000, while their American counterparts based in London have increased their compensation to up to £180,000 this year.
The move means pay at some firms at the lowest positions has risen by as much as 50 per cent over the past five years, raising concerns that flat wages could lead to higher expectations around the hours young lawyers should work, affecting employee well-being.
“It’s crazy what we’re allowing to happen to NQ salaries,” said one managing partner at a global law firm. “I’m not saying this from an economic point of view, but from a real cost perspective – the more firms pay for NQ lawyers, the less room for error you have. [with who you hire and their development].”
Paying for an NQ in London has become a barometer of success in recent years as UK firms seek to compete with the growing presence of their more entrenched American rivals with City offices.
Elite US firms such as Latham & Watkins are increasingly competing with the magic circle for corporate guidance in the UK, where mergers and acquisitions are at their highest value level since 2018, according to Dealogic. Globally, takeovers have totaled $1.3 trillion this year, up 23 percent from the same period last year, according to data compiled by the London Stock Exchange. This level of negotiation usually requires a small army of junior lawyers to help execute.
Top US firms, including Latham, pay their youngest associates in the city $225,000 (£176,000), which is comparable to the salaries of their first-year counterparts in the US. Quinn Emanuel and Gibson Dunn have boosted newly qualified salaries in the UK capital to £180,000 this year.
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According to one of the “magic circle” partners who was involved in the decision to increase the salary at their firm, the increase is necessary to compete with such American colleagues who have benefited from the favorable exchange rate of the dollar against sterling in recent years. The magic circle firm also wanted to be proactive rather than reactive to the loss of talent, the person said.
According to legal recruiters, companies have every right to be nervous.
“NQ lateral movement has been the busiest I have seen in years, with loyalty to the qualification at a significantly low level,” said Nathan Peart, who runs associate recruitment in Emea at legal recruiter Major, Lindsey & Africa. “Attracted by rising salaries, particularly in US firms and others looking to remain competitive in the market, NQs are increasingly open to seeking new qualification opportunities.”
In order to gain full qualifications, lawyers complete a mandatory two-year paid internship after law school, during which they rotate between different areas of practice in the firm. The hope is that the company will retain the intern after qualification, which immediately leads to a salary increase. Trainees at magic circle firms, for example, earn up to £61,000.
Some US rivals, such as Quinn Emanuel, do not offer London practice contracts. This increases the pressure on magic circle firms to try to retain their NQs after investing in them as interns.
However, the ever-increasing focus on compensation will inevitably affect company culture, according to colleagues and clients. US-based firms traditionally have a reputation for paying better but demanding more billable hours from young lawyers in return. A pay rise is an implicit message to NQs that they need to work harder.
“I’m interested in how it works financially [constantly increasing NQ pay] these people will have to work extremely hard. And what does that mean in terms of what you do with their lives? What does that mean in terms of the quality of their work?” said Richard Price, director of legal and corporate affairs at mining company Anglo American.
American 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 only the hours that can be billed to the client for working on the item: the total working time is getting longer.
When employees at a magic circle firm were recently told of their pay raise, some raised concerns that 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 declined to comment on criticism of their pay rises.
Slaughter and May is the only firm in the elite UK group that did not pursue compensation. The firm said on Friday it was “watching closely” what other firms are doing with NQ salaries and was “considering our position”, according to an internal memo seen by the Financial Times and confirmed by Slaughters.
The firm has previously said it reviews pay twice a year and will next look at NQ pay in November. The interns’ salaries were increased, the memo said, bringing them on par with the rest of the “magic circle.”
Increasing wages can also have some unintended consequences. Two Magic Circle partners have expressed concern about the impact the NQ pay rise could have on the company’s view of the industry.
If partners are under pressure to justify higher salaries, this can also affect diversity efforts. Firms could be reluctant to hire lawyers from less privileged backgrounds who need more time to develop, according to two partners at law firms that have not increased NQ compensation.
It could also make it harder to manage poor performance, according to one industry consultant. Firms rely on a certain amount of attrition from their juniors every year. If people are being paid a lot more than they would get as in-house lawyers at a corporation, then it’s probably going to be more difficult to move people on.
“It doesn’t bother me personally.” [the escalating NQ pay]”I’m more interested in its sustainability and what it means for corporate culture,” said Anglo’s Price. “We really care about the well-being of the lawyers who work for us.”