A boom in salaries for junior lawyers in London law firms shows no sign of stopping, with annual salaries soaring to over £160,000 for the first few years.
Record levels of M&A and financing work, coupled with disaffected juniors leaving the industry and a limited supply of new hires, have pushed up salaries, and partners and recruiters say wages have not yet peaked.
“The numbers are a bit crazy,” said a partner at a US law firm in London. “I don’t think customers really appreciate that. They pay $215,000 to people with no experience. It’s silly money, and with no reward.”
New York law firm Milbank launched its latest round of pay rises on Jan. 20, raising salaries for first-year attorneys to $215,000. The new pay scale extends to $385,000 for more experienced employees, according to a Financial News memo. His lawyers in London will receive corresponding salary increases.
Fellow US firm Goodwin raised first-year lawyers’ salaries in London to £161,500 last week, according to a person familiar with the matter.
Partners of US firms in London say they need to follow market course to remain competitive and reward younger workers. But critics argue that skyrocketing wages have lost touch with reality.
“The General Counsel I speak to – from large, sophisticated multinationals – are appalled,” Richard Foley, senior partner at UK law firm Pinsent Masons, told FN.
money money money
Salaries at major US law firms have risen rapidly over the past year as firms try to retain staff in a competitive market as M&A and financing activity booms.
Milbank increased the first-year salary from $190,000 to $200,000 in June 2021, and shortly thereafter increased it again to $205,000, matching increases from its competitors. The latest increase means that first-year lawyers’ salaries have risen by more than 13% in the last seven months.
US law firm partners in London say they are relaxed about pay rises that they say reflect their firms’ recent success.
“The pay is great,” said a private equity partner at a US law firm in London. “In any high-end law firm, you sell staff hours; For every partner hour, you should sell three to four employee hours to make money.
“If there’s so much demand for that employee hour that you have to pay more to acquire it, that’s good — it means there’s demand for your business.”
READ Why law firms are struggling to fill the gaps
An M&A partner at a US law firm in London said pay rises reflected US firms’ profitability over UK rivals.
“British companies live in their own little world,” they said. “They think it’s totally unsustainable, but for US companies the economic environment is different.
“That happened in investment banking. Because of this, Goldman Sachs can pay more than Barings; they are different shops.”
US law firms are working through the end of a calendar year and are expected to begin announcing spectacular 2021 financial data in the coming weeks.
New York-based Cadwalader Wickersham & Taft grew revenue more than 30% and earnings per equity partner more than 70% in 2021, Law.com reported, citing preliminary figures.
Market sentiment is upbeat: according to a Thomson Reuters survey, more than two-thirds of U.S. law firm chiefs expect high or moderate growth in demand for legal services in 2022, and 75% expect high or moderate growth in earnings per attorney.
UK law firms have also had a good run, with salaries for Clifford Chance’s highest-earning partner rising 20% to £3.21m in the year to 30 April 2021.
However, the city is still catching up on the payment. Linklaters increased salaries for its newly qualified lawyers to £107,500 in September, the second increase in three months, while Allen & Overy introduced a new staff bonus in November to remain competitive with US firms.
US law firm partners in London say their firms’ deep roots in the lucrative New York market and focus on profitable sectors in the UK and Europe allow them to pay junior professionals more without sacrificing profitability.
“People in English law firms don’t understand that; They think there’s some kind of alchemy where we whip our people a lot harder than we do in the Magic Circle. That’s just not true,” said the US M&A partner.
READ Firm leaders reflect on their biggest challenges for 2022
While US firms focus on high-profit sectors like private equity and leveraged finance, the Magic Circle is “doing a lot of stuff at really bad prices,” they add.
Critics of the US-induced wage explosion argue that the wage spiral will not survive a market slowdown.
“All markets overheat from time to time,” said Foley of Pinsent Masons. “And then comes the time of correction. And I don’t think it will be any different.”
A senior in-house counsel for a financial services company said they would refuse to pay if companies tried to pass on their higher labor costs through higher fees.
“It will come out of their pockets, not the customers,” they said.
Attracting and retaining talent
Lawyers at UK and US firms say money is only part of the formula for keeping employees happy.
“The key components to attracting and retaining talent are the work experience of the people at your company and the brand you have in the marketplace,” Foley said.
“What does the company stand for? what does it believe in What are the options? What career paths are there? How do you take care of people? The more you get it right, the better you can keep your own talent.”
Charlie Harvey, a former Slaughter and May attorney who is now a director at Stephenson Executive Search, said the hot recruitment market presents many opportunities for attorneys.
“Candidates can be quite choosy, they know companies are desperately looking, they know salaries are going up and up and that some companies pay signup bonuses to get people over the line,” he said.
A partner at a Magic Circle firm said UK firms need to “sharpen” their offering to remain competitive with their US rivals on pay.
“For anyone sitting in the Magic Circle, it’s quite a privileged place. They still have the best employees and the employees still want to work there. The moment you can solve what you do for compensation, it becomes an even better place,” they said.
READ How the deal boom breaks law firm taboos
But they argued that the perception that US firms were pushing their employees harder meant some were still wary of making the jump, despite the pay gap.
A survey by website Legal Cheek published on Oct. 26 found that staff at Kirkland & Ellis in London finished work on average at 11:28 p.m., with city lawyers at US peers Ropes & Gray finishing work at 10:51 p.m made, juniors at Weil Gotshal & Manges at 10:51 p.m. 10:17 p.m., and attorneys at Latham & Watkins end their day at 9:48 p.m.
“When more people than ever are thinking about well-being and working with people who vaguely give a shit about their lives, the thought of going somewhere that has incentives to bill 2,500 hours a year … it takes a specific person who sign up for it,” said the Magic Circle partner.
“If we get close [on compensation] It is a compelling story for people to work where they are cared for and educated, go on vacation and go to their partner’s wedding.”
Foley said burned-out lawyers who had worked long hours would not be able to provide the service the client paid for and expected.
“Imagine you go to the dentist … and they’re like, ‘I haven’t slept in the last two days, you’re my 70th client anyway. They’re off that chair and down the street before they can say ‘gargle and swallow,'” he said.
High pay to stay here?
Still, partners and recruiters say junior wage inflation may not yet have peaked on either side of the Atlantic.
“Many thought the £150,000 mark might top it,” Harvey said. “But the numbers keep going up. With so much corporate and funding activity going on, I see salaries continue to rise. The demand – and available compensation – for high-end legal work is still incredibly high.”
“Ultimately, it’s a matter of supply and demand. As supply constrains and demand for legal services continues to grow, I’m confident law firms will continue to raise salaries to attract the best talent,” said Edward Stratford, director of legal services at recruiters Fox Rodney.
A US law firm’s M&A partner said high salaries are a reflection of how well the top law firms are doing in the ongoing deal bonanza.
“We don’t just do it out of the goodness of our hearts; The truth is, companies are just making so much more money,” they said.
However, Foley said the current wage rush will inevitably come to an end at some point.
“If there’s anyone who’s seriously suggesting the kind of increases that we’ve seen in the last year or two that you can only see year after year, I think they’re fooling themselves.”
Would you like to learn more about the world of city law? Sign up for our weekly newsletter here
To contact the author of this story with feedback or updates, email James Booth