How one stray email revealed cracks in A&O’s assistant pay

A misdirected email caused a few red faces at Allen & Overy (A&O) last week. As Lawyer News Weekly’s Grapevine revealed last Wednesday (22 June), A&O leveraged finance partner Tony Keal sent an email complaining that assistants in his area of practice were substantially underpaid.

However, Keal mistakenly sent the email not to managing partner David Morley as intended, but to the entire banking department. It kicked off an internal row about assistant pay rates, and much more besides.

A&O has dismissed Keal’s talk of “haemorrhaging” assistants. A spokesperson pointed out that Keal’s leveraged finance group had 47 assistants at this time last year, compared with 44 now. However, he was unable to give any statistics on the rate of churn within those numbers.

It is a strange phenomenon of magic circle life that its assistants all regard themselves as underpaid compared with their rival firms. One recruiter describes this as a “circular mythology”.

In fact, most City law firms are careful to peg their pay rates, according to virtually every salary survey under the sun. There are differences at the newly qualified (NQ) level – Linklaters most recently hiked its NQ salary to £52,000 – but they tend to even out at four or five years after qualification. A&O managing partner David Morley told The Lawyer: “It’s just not in our interest to be uncompetitive on salaries.”

A&O’s cherished collegiality makes differential salaries culturally impossible. The only course of action is to differentiate by way of bonus, but politically even this looks highly unlikely.

This perplexes recruiters, many of whom argue that the laws of supply and demand make differential salaries a necessity. “The modern law firm needs the flexibility to pay what it has to in order to attract and retain the best people,” says Mark Brandon of recruiters First Counsel. “There’s no reason why a highly prized assistant shouldn’t be paid 20 or 30 per cent more than a direct contemporary in another department.”

City finance lawyers are certainly playing in an entirely different market to many of their colleagues. A&O and Clifford Chance are competing for talent against Latham & Watkins, Shearman & Sterling and White & Case, all of which can offer transatlantic pay rates.

But Keal’s killer paragraph is this, buried further down the email. It is a very public acknowledgement that the promise of partnership is simply not there any more. “I don’t begrudge higher pay to support staff who excel in terms of quality and commitment. However, our assistants must be given the same opportunities which the partnership carrot philosophy no longer provides.” (The Lawyer’s italics.)

Virtually no law firm has found the answer to this. Many US firms operate an ‘of counsel’ system, which allows senior lawyers status with a big pay package, but that has never caught on in the UK.
In this context, Clifford Chance’s proposed move to an all-equity partnership with the lockstep stretched downwards to accommodate junior partners will be watched closely.

It may suit A&O to portray Keal as a maverick, but his email has exposed the underbelly of modern law firms. The tensions of keeping profit per equity partner high has a trickle-down effect which partners have not bargained for.

How long can the assistant lockstep last?

Tony Keal’s email

On Monday 20 June, Keal wrote: “Dave – it is becoming ever clearer that the firm is subsantially underpaying senior (and to a lesser extent) junior finance assistants relative to the market.

“Were the really good leveraged finance assistants (the same applies to other disciplines, eg derivatives) to get ‘locally driven salaries’ as the senior support staff are to get, pay increases of the order of 10-20 per cent at the junior level and 30-40 per cent at the senior level would be required.

“Why is the firm willing to pay ‘locally driven’ salaries and bonuses of up to 40K to its senior support staff but not to its senior lawyers? Over time the haemmorhaging of senior assistants has led and will continue to lead to a degredation of overall assistant quality.

“I don’t begrudge higher pay to support staff who excel in terms of quality and commitment. However, our assistants must be given the same opportunities which the partnership carrot philosophy no longer provides.”