Despite recent moves to raise associate pay, the rate of increase in average partner profits in the UK’s top 10 firms has outpaced significantly the growth in newly qualified salaries.
Newly qualified associates, the most accurate barometer of associate salaries, received their largest pay rises for several years at the start of the current financial year.
Linklaters, which kicked off the salary hikes, increased its newly qualified salaries by 6 per cent to £55,100. Meanwhile, Herbert Smith, Norton Rose, Simmons & Simmons and SJ Berwin all boosted their newly qualified salaries by 10 per cent to £55,000. Lovells announced newly qualified salaries just below the benchmark of £53,000.
National firms Addleshaw Goddard and Hammonds are both reviewing their salaries. Addleshaws, which currently pays its London-based newly qualifieds £50,000, is expected to announce its new rates on 1 September. Hammonds, meanwhile, is reviewing its associate remuneration package as part of its firmwide strategic review.
But despite the latest salary hikes, independent research by The Lawyer revealed that the average salary paid to newly qualified solictors has increased by just 26.4 per cent between 2000 and 2006, while average partner profits have shot up by 32.2 per cent during the same period.
Mark Wagner, a senior associate at recruiters Shilton Sharpe Quarry, says: “PEP [profit per equity partner] is important for firms, and associate salaries are a cost that brings down profit.”
Unlike the rest of the top 10, newly qualified salaries grew at a slightly faster rate than average partner profits in the magic circle. Between 2000 and 2006 the average newly qualified salary paid by the magic circle firms increased by 28.4 per cent to £55,000, while average partner profits jumped by 24 per cent to £872,500.
Silver circle firm SJ Berwin triggered the first significant salary war in February 2000 after it announced a 25 per cent jump in its newly qualified salaries to £42,000 to woo the IT, telecoms, private equity and corporate finance lawyers being tempted away to US firms.
This huge jump may explain why the bottom six of the top 10 have such a huge disparity between rises in associate salaries and PEP. The avergae PEP outside the magic circle rose by a stunning 40 per cent from 2000 to 2006, while newly qualified salaries rose by just 25 per cent.
Wagner says: “If you think what firms went through – firms hiring hundreds of associates in the dotcom boom, then, when the downturn hit, having to lay people off massively – firms are more cautious.”