Has the legal market pulled the brakes on the NQ pay war?
‘City lawyers are the new bankers‘. This became a common refrain in the legal market as pay wars ramped up. However, the sentiment within the market suggests that the tide may be changing.
Over the past several years, the pay war over newly qualified (NQ) lawyers has been a major talking point in the market, as UK firms battled to keep up with the growing pay packets the US firms were offering in London.
Last year, US firms Gibson Dunn and Quinn Emanuel Urquhart & Sullivan increased their London NQ salaries to £180,000, the highest pay packet for this role in the UK.
Not surprisingly, the headlines lit up over the thought that people who had just completed their training and qualification process, typically in their early 20s, were taking home nearly £9,000 each month, after tax.
Top English firms, including those in the Magic Circle, have struggled to keep up, with several offering salaries of £150,000. However, it was the Silver Circle and smaller companies that struggled, as they were unable to compete in any pay war.
A costly competition
The pay increase in English firms was also causing issues at the associate level as those lawyers found their pay coming to a stall.
As Adam Stocker, director at Major, Lindsey & Africa, told Morning Wire, “Unlike UK firms, US firms apply uniform pay bands across post-qualified experience levels, meaning mid-level associates can earn significantly more than their UK counterparts.”
“This disparity has shifted the retention risk, with UK firms now seeing the loss of mid-level lawyers as the greater threat to their business,” he added.
The pay isn’t free, and the lawyers who opted for US firms will be working more than 12-hour days, while those at top English firms aren’t far behind, at around 10 hours.
For clients, growing pay packages for the most junior lawyers did not sit well. With lots of businesses facing the current economic issues, many general counsels (GC) face an uphill battle trying to balance the legal spend on external law firms.
Julian Taylor, senior partner at Simmons & Simmons, stated to Morning Wire, “The spiralling pay, particularly at NQ level, hasn’t been healthy. Not for clients, who know full well that many firms try to pass those increases on.”
“But not for the junior lawyers either, given the immense pressure that can come alongside those pay packages,” he added.
However, there are signs that the market may be pulling a trigger on the pay race. Last week, it was reported that City law firm Addleshaw Goddard pulled out of the junior salary war by freezing pay and relocating the funds to its bonus pot.
The firm reallocated £1m that would have been spent on higher salaries for NQs, who are already paid £100,000, and added it into the bonus pot, now worth £19m.
“I suspect the pay war will continue amongst some firms. But the market is not blindly following, there seems to be an increasing recognition that pay levels must be sustainable and our market can’t just detach itself from reality,” Taylor stated.
Many firms share the view that junior lawyer salaries spiralled out of control over the years, and ultimately, it was clients who bore the cost.
Eyes on the Law is a weekly column by Maria Ward-Brennan focused on the legal sector.