“If it wasn't for the money, I never would have moved.” These are the words of a one year-qualified corporate lawyer who left the relative security of a top 10 City firm for the 'brave new world' of a US firm's fledgling London office.
So just how much money was this newly-qualified lawyer offered? A whopping £81,000. Unfortunately, a year later, the lawyer was made redundant, along with a number of others, which begs the question: did these salaries make economic sense in the first place?
The top of the US salary tree (see table for details) sees some newly-qualified lawyers being paid as much as £85,000. At first sight, salaries like this appear to be something of an anomaly given the current market conditions. Yet when asking US managing partners whether such salaries are justifiable, the answer more often that not is an emphatic “yes”. However, tellingly, the rationale provided is rarely couched in pure economic terms. Rather, it is the softer issues of fairness, transparency and morale that tend to crop up.
A great many of the US firms paying their UK associates full US rates believe that it would be extremely divisive to do otherwise. Where you have UK and US associates working under the same roof, doing the same hours and often working on the same deals for the same clients, how can you justify paying them different rates? Many argue that to do so would be suicidal – a complete disaster for morale.
Issues of consistency and motivation aside, there is also the question of being able to attract the right people. While some lawyers may totally buy in to the idea of working in a smaller office environment, or may adhere to the belief that the US working culture is more dynamic, others need more than this to take the leap of faith required to leave the comfort and familiarity of working in a UK firm.
In the bull market everyone enjoyed up until a year or so ago, there was a serious shortage of well-trained transactional lawyers. In order to lure the best away from the top-tier UK practices, the US firms arguably had to up the stakes on the financial front. In the current bear market, lawyers, being naturally averse to risk, are wary about sticking their necks out, and without an attractive financial carrot are less likely to take a jump into the unknown.
While the salaries offered by some firms are definitely headline material, it should not be forgotten that there are a great many US firms in London that do not pay full US rates to their UK associates. They instead pay what are known as 'mid-Atlantic rates', typically between 10 and 20 per cent higher than those of the magic circle (see table). A lot of these firms do not have any US associates in their London offices and so maybe the morale issue is less of a consideration. Which raises the question: why pay more than the going market rate? A figure of 10-20 per cent above City rates seems a little arbitrary, unless, of course, you look upon the extra money as a sweetener.
So how do you deal with a spiralling wage bill in the face of an economic downturn? In black and white terms there are only two choices: make redundancies or cut salaries. However, in reality, there is a grey area that allows firms some room for manoeuvre.
In boom times, with associates clocking up massive billable hours totals, a great number will have qualified for substantial bonuses. In the current climate, with fewer hours being worked, firms can bank on making a substantial saving on bonuses. There are also ways of reducing the spend on salaries without actually cutting existing pay. When it came to pay reviews in January this year, the vast majority of US firms moved their associates up a pay band but, at the same time, there were no inflationary increases. This seems set to be the position taken in January 2003 as well. Although some have been even more cunning by actually reducing the entry level salary for newly-qualified lawyers. One such firm cut its first-year salary from £81,000 to £70,000.
While measures such as these might buy firms a little time, if economic conditions continue to bite, then eventually they will have to address the 'salary cuts or redundancies' choice. One firm actually invited its associates to make the decision themselves. Interestingly, the associates gambled and went for redundancies. This story illustrates very clearly just how unpalatable direct salary cuts are to associates. Only firms with the strongest of wills are going to want to fight that particular battle.
So the alternative is to make redundancies. Undoubtedly, a substantial number of lawyers have lost their jobs back in the US, but the London offices seem to have fared much better. True, there have been some cases of English associates being made redundant, most notably in those firms affected by the bursting of the dotcom bubble, but there has been little in the way of widespread redundancy programmes or instances of insidious managing-out.
Maybe it really is the case that the relatively higher salaries paid by US firms in the London market have done the trick, ensuring that they have been able to hire some of the best talent around – talent they are keen to hold on to even in an economic downturn.
Fiona Bennett is the business manager of the private practice division at Hays ZMB