City firms braced for new associate salary showdown

City associates and trainees are set to receive record pay rises as firms gear up for a new salary war.

Allen & Overy (A&O), Herbert Smith, Linklaters, Lovells and Norton Rose are all reviewing their associate pay with A&O expected to make an announcement next week. The other are expected to announce rises within the next few weeks.

One Norton Rose partner said: “Clifford Chance has put the benchmark at an unexpected low point, which to me looks as if it’s first mover disadvantage. I can see the magic circle firms will follow suit and may go even further.”

Clifford Chance’s announcement last week that the firm will increase its London associate and trainee salaries by on average around 15 per cent has made other firms reassess their salary scales.

White & Case partner Mike Goetz told The Lawyer: “Associates will want to earn the most favourable amount and this certainly affects all firms.” From 1 May Clifford Chance’s newly qualified lawyers will earn £63,500 – an increase of £8,500. An associate with one year’s PQE will take home a salary of £66,000, with a potential maximum package of £79,200 including bonuses.

Last October A&O raised its London associate pay by 15 per cent, but this did not trigger an immediate pay war, with firms waiting for the year-end to see what other competitors did.

A Linklaters partner said: “There’s an ongoing argument whether it’s better to increase associate salaries across the board or to keep it more flexible by giving bigger bonuses to the stars. By increasing it for all it means that, if the following year there’s a drop in revenues, there’ll be a loss in profit. It seems to be that Clifford Chance’s rise of 15 per cent is too high for this reason.”

Research by The Lawyer reveals that, while the average salary for newly qualified associates at the UK’s top 10 firms has increased by a little more than 10 per cent in five years, average profit per equity partner increased by more than 24 per cent.