As a flood of September qualifiers enter the profession, one question that should be nagging away in the head of every law firm leader is, of course, "How much will we be paying our newly qualifieds next year?"
There was massive excitement this spring at the increase in newly-qualified salaries at magic circle firms, from £34,000 to £42,000. How much fluttering would we hear in the dovecotes next time if the magic circle decide to pay a "mid-Atlantic" rate of, say, £65,000? There are several constituencies that ought to prick up their ears to this question.
First, partners in firms whose profitability is already marginal. If the magic circle pays £65,000, the seismic effects of imitation for unsuccessful firms (and of a conscious decision not to do so) could be catastrophic. Marginal profit can quickly become a loss, and for firms that are stretching themselves to pay this year's market rates to their people in the midst of today's plenty, the attrition rate next year will be fearsome, even if the bull market for legal services continues. However, the Brave New World does not owe a living to the partners of unsuccessful firms. Many young partners in commercial practice in second-tier or high street firms will find themselves better off tomorrow as employees in successful firms, than they are today as partners in unsuccessful ones.
As for barristers, the new salary levels will turn another group of the most able law graduates away from the bar and into successful law firms.
Another interested group should be in-house lawyers. They appear to have taken last year's magic circle salary and charging rate increases with an equanimity bordering on indifference. I would expect serious in-house lawyers with real clout in the magic circle to be starting (as of now) to caution about the limited extent to which charging rate increases will be acceptable from firms where partner profits have seven figures. Now is the time for in- house lawyers to make their voices heard – while there's still time to influence the argument.
The most successful firms outside the magic circle also have plenty of thinking to do. They need to consider how best to improve their ability to retain their best people and to recruit strongly, when their salaries may fail to follow those paid by the magic circle. The tactic of paying almost – but not quite – the same amounts may not last much longer. But all young lawyers want to make choices about how they play their careers. Some will want to work extremely hard, at levels of commitment no less than those demanded by the toughest ball-breaking firms on the block, while others will want to make a more measured commitment. It is the mission of law firm managers to find remuneration structures that acknowledge these widely differing motivations of its people, and then set them to the service of the firm's clients. For all firms this will be difficult to achieve; for some, impossible.
The last constituency consists, of course, of the young lawyers who will be receiving these salaries. They will be anxiously reading between the lines of their employment contracts, trying to work out the extent to which they will retain a life of their own. Paid slavery – even highly paid slavery – will not be an option for which all will want to volunteer.
Leslie Perrin is managing partner of Osborne Clarke. He can be contacted at firstname.lastname@example.org