May 2019 saw Magic Circle law firm Freshfields Bruckhaus Deringer increase its salary for newly qualified lawyers (NQs) to £100k plus a discretionary bonus, which was largely fuelled by competition from large US firms.
Large UK law firms have done well to resist major NQ salary rises for this long, which has primarily been achieved by offering work-life balance and perks as opposed to simply cold cash. However, the 18% increase in pay for NQ lawyers at Freshfields means their salary is now more than double the pay received by their counterparts at investment banks, and this has been fuelled by aggressive competition from large US law firms, including Milbank and Cravath, which last year started paying their NQ lawyers £145k. Freshfields announced in a statement: ‘Our pay offering is a critical part of our talent strategy and reflects our continued commitment to attracting and retaining the very best talent in the legal market. We regularly review our compensation and benefits across the firm with this in mind’.
But what does this mean for the legal profession going forward?
This move by Freshfields inevitably put pressure on the other four Magic Circle law firms to follow suit to maintain their elite status among future lawyers. Clifford Chance increased their salary for new lawyers at the beginning of June, followed by Slaughter & May, then Allen & Overy and most recently Linklaters. Although it is also worth noting that both Clifford Chance and Slaughters include bonuses in their £100k pay whilst Freshfields are offering discretionary bonuses on top of the increased salary, leaving Freshfields out in front.
This move by Freshfields will not only affect those firms in the Magic Circle. Silver Circle firms, such as Travers Smith and Macfarlanes, who offer the strongest competition to Magic Circle firms for hotshot law students will also be forced to increase salaries for NQ lawyers if they want to remain in the competition. This is already apparent, with Macfarlanes boosting it's NQ remuneration package to range from £98,600 to £110,250. This will then be followed by global megafirms, and firms below them and so on.
This move may also affect UK corporate law - paying like US firms inevitably means working like US firms. Large US firms have less junior associates per Partner which results in longer working hours, and London headquartered firms will have little choice but to move towards a working model similar to that of US firms if they want to maintain profitability.
It is perhaps fair to say that the US business culture does not fully translate culturally to the UK, which means that UK law firms will be looking for ways to increase efficiency. The UK is arguably ahead of the US in terms of driving more efficiencies with lawtech, and recent years have seen major law firms investing in technology that’s beginning to yield results in the British legal market. Aside from lawtech, north-shoring is likely to rise as it is cheaper to employ people outside of London due to London housing and renting prices.
This is all worth considering when deciding on your legal career path once you qualify as a lawyer. With this salary increase, competition among top UK law firms will be even fiercer. There are plenty of options for you as a newly-qualified lawyer and with the current legal market seeing considerable movement in terms of remuneration and benefits packages, speaking to one of our specialist legal recruiters can help you make the decision that’s best for your future career.