Top UK law firms are acutely aware of pay disparities that hamper efforts to compete with Wall Street rivals for top talent And we are taking steps to reduce it.
None of the five prestigious London-based law firms, known as Magic Circle firms, meet the so-called Cravath Standards that America’s elite law firms adhere to when it comes to employee compensation. Leah Kalnik, a London-based legal recruiter at Major Lindsay & Africa, says salaries at UK firms are 35 to 40 per cent below Cravath standards for junior lawyers.
Scott Gibson, a director at London-based legal consultancy Edwards Gibson, said British companies were struggling to match the profits of American companies, partly due to new competition and post-Brexit currency fluctuations. He said that “British companies, the Magic Circle, no longer dominate the market as they once did,” he said.
This wage disparity has left the five London companies struggling to compete with U.S. companies in their home turf. This compares to Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters and Slaughter & May, which formed the undisputed pinnacle of London’s legal market as recently as ten years ago. This is a harsh reality for us.
Since 2015, US companies have begun a concerted push into the UK market to pursue large private equity ventures.. “It’s a completely different level and a completely different amount of money coming in,” said Adil Lalani, managing director of MacRae, a London-based legal recruitment firm. “This is how many American companies were able to operate in the UK and maintain healthy interest rates.”
America’s push includes aggressive hiring, and continues to do so. Kirkland & Ellis brought 18 partners to the UK last year, the most of any US firm in London, according to a report from Edwards Gibson. Paul, Weiss, Rifkind, Wharton & Garrison, which has made expansion in London a top priority, came in second with 14 external hires, according to Edwards Gibson.
Paul Weiss’ hire also included private equity superstar Kirkland Neil Sachdev and Roger Johnson, two partners of Linklaters and two partners of Clifford Chance. Zakdev and Johnson reportedly received salaries of $20 million for the move.
Leopard Solutions said about 370 employees have left Magic Circle companies in the past 12 months, and some of America’s top companies have also benefited.
Chris Clark, director of London-based Definitum Search, says, “Rather than invest all your money and time into developing your own trainees, you should choose the most qualified among your Magic Circle competitors.” It’s easier to select the best trainees.”
Mr Clarke said A&O Sherman, the result of the transatlantic merger of Allen & Overy and New York-based Shearman & Sterling and due to complete in May, would further exacerbate the pressure on British companies. Stated. “A&O Sherman will adjust London’s salary and the rest of the Magic Circle will have to adjust accordingly,” he said.
Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters, and Slaughter & May did not respond to requests for comment for this article.
counterattack
British businesses are increasing employee pay from 2020 as they juggle record levels of work and need to attract and retain employees to do so.
Karnik said London has seen pay increases of 25% to 30% for newly qualified employees since the summer of 2020, and a new bonus scheme has also been introduced to encourage high performance. But as Magic Circle companies raise pay, so do their American rivals, and while the pay gap remains, British companies are trying to address it.
“Magic Circle companies are well aware of this wage disparity. And we tried to close the gap by offering employees the opportunity to earn 100% of their base salary as a bonus if they hit a particularly high standard of working hours,” Karnik said.
Kalnik said the standard working hours for UK-based employees is comparable to expected working hours at Big Law US firms in London. That’s something London lawyers have traditionally tried to avoid.
Mr Clark said the expected working hours in UK companies were different than in US companies. “Working every weekend for six months, or over 2,000 hours a year, is completely unacceptable.”
Mr Clarke said employees at British companies were hoping to move through previously stifled promotion routes more quickly in order to retain talent who might jump to competitors. A high-performing mid-level employee who leaves to join a competing company in the United States may receive a covert salary adjustment from the Magic Circle company, and the employee may receive a significant retention bonus, he said. Told.
Cravath’s scales
The latest Cravath standards for associates in London at top US law firms are $225,000 for first-year associates and $420,000 for seventh-year associates. Karnik said there is some variation because each company calculates the exchange rate differently.
Three US companies last week announced pay increases for UK employees. Sidley Austin said newly qualified lawyers would receive a 4.4% increase to around $212,000 (approximately £166,500), while Ropes & Gray said it would pay a 12% increase for first-year lawyers in London. Paul Hastings said he would increase the salaries of new lawyers. 5.5% to around $220,000 (£173,000) for qualified lawyers.
U.S. firms typically employ leaner team structures for deals in London, but junior-level dealmakers are consistently needed, Kalnik said. In the past two years, he said, the scope has expanded from mid-career to senior candidates.
But the boom in mergers and acquisitions, initial public offerings, and private equity that brought more jobs and higher pay for workers in 2020 and 2021 has yet to recover in 2024.
“It’s going to be more of a question of whether there are enough workarounds to justify this exorbitant salary,” Gibson said. “Pay wars always end badly for employees.”