City firms raid coffers to protect assistants from US salary hikes
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The UK market is reeling after news broke of SJ Berwin's plan to hike assistants' salaries.Assistants' salaries have been the hot topic on both sides of the Atlantic in the last week. Sean Farrell reports.
The UK market was shaken by the news that SJ Berwin plans to raise assistants' salaries by as much as 25 per cent to attract and retain the best assistants (The Lawyer, 21 February).
Industry sources say that the reaction from second-tier firms ranges from "how do we compete with that?" to "this is a real opportunity now they have made the move".
Most will wait to see how the magic circle reacts. As revealed by The Lawyer last week, Clifford Chance is reviewing assistants' salaries following Rogers & Wells' decision to raise its rates to match the other New York firms.
It is understood that the firm is grappling with the problems raised by US associates on secondment to London who are earning vastly more than the assistant sitting at the next desk.
But sources say that it is harder for the more bureaucratic mega-firms to change their salary structures so dramatically.
There are only a few second-tier firms with comparable profitability to that of SJ Berwin, which is £400,000 per partner according to The Lawyer 100. And even those firms will have hard choices to make if they are to follow SJ Berwin's lead.
One managing partner at a firm with similar profitability to SJ Berwin says: "You have to ask whether law firms can make enough money out of newly-qualified assistants.
"Firms will have to decide whether they are going to keep them on or not and if they are they will have to extract more out of junior assistants in terms of time and recovery.
"If you are going to get a third more out of people to pay for extra wages you will presumably have to sack a third because you will not get a third more work out of your clients.
"Clients will ultimately pay for it. In the States they get the hours out of young people and the clients seem willing to pay for those hours."
The US is still feeling the effects of the salary rises which were sparked by the Silicon Valley firms in an attempt to deter their associates from going to internet start-ups in the hope of becoming instant millionaires.
And this is beginning to affect the London market.
A number of US firms are already paying the revised New York rates in the City. These firms include Dewey Ballantine, Latham & Watkins, Sullivan & Cromwell and Cleary Gottlieb Steen & Hamilton.
All these firms are in the market for top UK-qualified lawyers, fuelling the spiral even further.
Debbie Cochrane, a consultant at recruiters ZMB who handles a lot of US firms, says: "This is good news for UK assistants working in the London offices of those US firms paying lawyers top New York rates.
"For example, a three-year qualified lawyer at a firm like Latham & Watkins can now achieve a base salary of around £110,000, plus a bonus of up to 30 per cent for star performers."
Managing partner of Freshfields Ian Terry questions the wisdom of such rises. He says that if US lawyers want to go in-house to seek their fortunes, an extra $20,000 is unlikely to change their minds.
"In terms of the impact here, the market here is different and there is at some levels a disparity between what US and UK firms pay in London.
"But we are not seeing a mass exodus, because it is a different environment and training experience. We have had a number of people who have gone to US firms but about half have come back within 12 months," says Terry.
SJ Berwin has been called "the first US firm in London" because of its aggressive stance, and its decision to raise rates is understood to be partly in response to the threat posed by predatory US firms.
But SJ Berwin's new rates are likely to have a knock-on effect to those US London operations paying a top-up of about 20 per cent on City salaries - so-called mid-atlantic rates.
One London managing partner of a US firm that currently pays about £40,000 to newly-qualifieds says that the firm will raise its salaries to beat the top levels paid by City firms.
"We will have to see where the London market settles and where the US market settles. We may be close to US levels anyway, which means we have to ask if we should continue to differentiate anyway.
"The perception is that there is a risk in going to a US firm, and that perception can diminish over time, but when you have Sonnenschein closing, that increases and we have to pay a premium to attract people."
So where will it all end? Gavin Sharpe, a senior consultant with recruiters QD, says: "The question now is whether this is going to start a salary war and whether other firms are going to start paying their lawyers more, or even just their most profitable practice groups more.
"The reaction has been very mixed. Some firms could afford to, but some are not in the financial condition to do it and some are not bold enough to do it.
"I think we will see more firms introducing merit-based pay and we may now see further use of golden hellos."