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Add lawyers to the list of professions suffering worker shortages. Law firms are so desperate they are proffering golden handcuffs worth up to $250,000. Slaughter and May, a large London legal group, recently increased trainee pay for the second time this year.
A pay war for City legal talent has been raging since 2016. It was started by New York-based firm Cravath, Swaine & Moore and continued by the likes of Kirkland & Ellis amid the buyout boom. Junior lawyers in London are the beneficiaries. Pay for newly-qualified lawyers at top US firms in the City jumped between 2015 and 2021, from about £100,000 a year to £150,000 ($205,000).
London’s five-strong Magic Circle group cannot keep up. For years they did not even really try. US firms are more profitable. At $5.2m, the median profit per equity partner of the 10 most profitable US firms was about twice that of Clifford Chance, Allen & Overy, Freshfields and Linklaters, according to the Am Law 100 ranking and partnership data.
UK firms are now having to compete on pay, nonetheless, thanks to the unrelenting demand of US firms for London lawyers. The result is a two-tier system for pay — if not prestige — in the legal market.
The elite City firms have coalesced around a starting package of £100,000 for qualified lawyers. This means premature pandemic salary cuts have been reversed. Trainees, a year out of their undergraduate studies, can expect to earn £50,000.
UK partnerships hope their brands and other benefits bridge the pay gap with US-based rivals — though hours are equally punishing and partnership prospects slim. They are also paying a higher proportion of remuneration in bonuses. That will give greater flexibility when the business cycle turns.
Many Magic Circle partners still look down their noses at the City outposts of US law firms. Increasingly, younger employees do not. But the acid test of both types of employer will only come with the next downturn. High-paying US firms are then more likely to cut jobs and pay than UK counterparts.
The Lex team is interested in hearing more from readers. Please tell us what you think of City lawyer salaries in the comments section below.