Significant pay rises for London’s youngest lawyers at elite firms have been criticized by rivals and clients as “insane” and unsustainable, as an improving economic outlook and a spike in dealmaking reignite the city’s war for talent.
British ‘magic circle’ firms Freshfields Bruckhaus Deringer, Linklaters, Clifford Chance and A&O Shearman have increased the salaries of newly qualified lawyers by 20 percent this month [NQs] to £150,000, while their American counterparts with outposts in London have boosted compensation to as much as £180,000 this year.
The move means pay for the most junior ranks of some firms has risen by as much as 50 percent over the past five years, raising concerns that high pay could lead to higher expectations around the hours young lawyers should work , which could affect employee well-being.
“It’s insane what we’re allowing to happen with NQ Pay,” said a managing partner at a global law firm. “I don’t say it from an economic perspective, but from actual costs: the more companies pay for NQ lawyers, the less margin for error you have [with who you hire and their development].”
Paying for NQs in London has become a barometer of success in recent years as British companies have tried to compete with the growing presence of their American rivals with deeper pockets of city offices.
Elite US firms such as Latham & Watkins are increasingly competing with the magic circle for corporate instructions in Britain, where mergers and acquisitions are at their highest level in terms of value since 2018, according to Dealogic. Global takeovers reached $1.3 trillion this year, up 23 percent from the same period last year, according to data compiled by the London Stock Exchange Group. That level of dealmaking typically requires a small army of young lawyers to help execute.
The top US companies, including Latham, pay their most junior employees $225,000 (£176,000) in the city, which is comparable to the salaries of their fellow first-year employees in the US. Quinn Emanuel and Gibson Dunn have both increased the salary for new arrivals in the British capital to £180,000 this year.
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According to a “magic circle” partner involved in the decision to increase wages at their company, the increase is necessary to compete with American peers who have benefited from a favorable exchange rate between the dollar and the British in recent years lb. The Magic Circle company also wanted to be proactive rather than reactive to the loss of talent, the person said.
According to legal recruiters, companies are rightly nervous.
“NQ’s lateral move has been the busiest I’ve seen in years, with qualification loyalty at a clear low point,” says Nathan Peart, who leads Emea recruitment at legal recruiter Major, Lindsey & Africa. “Attracted by rising salaries, especially among US companies and others looking to remain competitive in the marketplace, NQs are increasingly open to new opportunities in the field of qualification.”
To become fully qualified, lawyers must complete a mandatory two-year paid internship after law school, during which they rotate between different practice areas within a firm. The hope is that the company will retain the intern once qualified, resulting in an immediate pay increase. For example, interns at Magic Circle companies earn up to £61,000.
Some American rivals, such as Quinn Emanuel, do not offer training contracts in London. This increases pressure on magic circle companies to try to retain their NQs after investing in them as trainees.
Yet a growing focus on reward will inevitably have an impact on company culture, according to colleagues and customers. US-headquartered firms have traditionally had a reputation for paying better but demanding more billable hours from young lawyers in return. By raising wages the implicit message to NQs is that they have to work harder.
“It worries me that this will work out financially [constantly increasing NQ pay] these people will have to work extremely hard. And what does that mean for what you do with their lives? What does that mean for the quality of their work?” said Richard Price, director of legal and corporate affairs at mining company Anglo American.
US companies like Latham have an annual billable target of 1,900 hours for employees to receive their bonus, while magic circle companies tend to be closer to 1,700 hours, according to headhunters. These are just the hours that can be charged to a client for work on a case: the total working time is still longer.
When employees at a Magic Circle company were recently notified of their pay increase, some expressed concerns about whether it meant they were being asked to work more hours, according to a concerned partner.
Freshfields, Linklaters, Clifford Chance, A&O Shearman, Quinn and Gibson Dunn all declined to comment on criticism of their pay rises.
Slaughter and May is the only company in Britain’s elite group that has not followed suit on compensation. The company said on Friday it was “closely monitoring” what other companies were doing with NQ wages and was “considering our position”, according to an internal memo seen by the Financial Times and confirmed by Slaughters.
The company has previously said it will review salaries biannually and then look at NQ wages in November. Intern salaries have been increased, the memo said, bringing them in line with the rest of the “magic circle.”
The pay increases may also have unintended consequences. Two magic circle partners raised concerns about the impact that pay increases in the NQ could have on society’s view of the sector.
If partners are under pressure to justify higher salaries, this could also impact diversity efforts. Firms could be more 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 deal with poor performance, according to an industry consultant. Companies expect a certain degree of outflow from their junior ranks every year. If people are paid much more than they would get as an in-house lawyer at a firm, it will probably become more difficult to get people to move on.
“Personally it doesn’t bother me [the escalating NQ pay]I’m more concerned about its sustainability and what it means for the culture of the companies,” said Anglo’s Price. “We truly care about the well-being of the lawyers who work for us.”