UK vs US associate pay

October 1, 2011

How London US firms are stealing a march on their UK counterparts, again

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Keeping up with the Joneses appears to be the primary motivation for associate pay-rises among UK law firms right now. This may be giving US firms in London a further recruitment advantage as their considerably higher salaries continue to stretch ahead of UK firms.

Figures recently published in the legal trade press show leading UK firms leaping over each other to essentially offer the same salaries to junior associates. Hence, Linklaters, Allen & Overy and Herbert Smith have this year frozen their associate salaries for those up to three years’ post-qualified experience (PQE).

Meanwhile, Clifford Chance, Freshfields and Slaughter & May have all announced modest pay-rises for the same associate bands – in the region of two to four per cent. Overall, however, this results in the following insignificant salary variation among those same firms:

  •  £61,000 to £61,500 for Newly Qualified (NQ)
  • £68,000 to £69,500 for one year’s PQE
  • £73,000 to £75,000 for two years’ PQE
  • £85,000 to £88,000 for three years’ PQE

Meanwhile, however, US firms continue to offer much broader and higher salary brackets. According to a recent survey of associate salaries, US firms not only pay their London associates considerably more, but there is also a wider gap between each pay band:

  • £92,000 to £109,000 for one year’s PQE
  • £102,000 to £112,000 for two years’ PQE
  • £114,000 to £123,000 for three years’ PQE

PRP to end salary benchmarking?

But the differences may also reflect a significant change among UK firms that is coming to the fore: the shift to merit-based remuneration.

Many firms have not divulged their salary details this year because they have moved away from the associate lock-step model. Hence, DLA Piper and Pinsent Masons both declined to announce their salaries for associates beyond the NQ stage because they both operate merit-based systems.

With an increasing number of firms viewing performance-based pay as an important step to effectively compete in the modern business world, this trend is unlikely to slow any time soon – with a consequent impact on annual salary announcements.

At the very least, a likely outcome is that UK law firms will give up their long affection for salary benchmarking. Which may be no bad thing if it means that firms start using their remuneration packages to really differentiate their offerings, rather than just ensuring their salaries are on a par with the local competition.

In the meantime, however, UK firms will no doubt be struck by some of the London pay-rises announced by US firms this year. Shearman & Sterling, for example, has announced as much as 15 per cent increases across its three-tier merit-based system.

And London NQ associates at Weil, Gotshall & Manges are enjoying an eight per cent pay increase this year. This represents a rise from £90,000 to £97,000, compared with a typical NQ salary among leading UK firms that remains at £61,000.

It has been argued that the entry of the US firms into London was an important factor in the rapid escalation of UK salaries from 2000 onwards. Time will tell whether these rises are significant and widespread enough to again impact associate salaries among UK firms.

But it is clear that in a global marketplace, where international recruitment is increasingly important, it will be ever-more important for law firms to look beyond their immediate enclave and to take a broader view. CP

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