Clifford Chance’s newly qualified associates are now on base salaries of £81,000. But only in the US. The magic circle’s limited largesse came in response to a flurry of raises in associate pay at US firms. All it took was for one firm to announce a hike for a snowball effect to happen.
Within days of Manhattan stalwart Simpson Thacher & Bartlett announcing that it was hiking associate pay by $15,000 (£7,610) on 23 January at least 22 firms sprinted to match its rates.
New York firms Cadwalader Wickersham & Taft, Cleary Gottlieb Steen & Hamilton, Dewey Ballantine, Fried Frank Harris
Shriver & Jacobson, Milbank Tweed Hadley & McCloy, Paul Weiss Rifkind Wharton & Garrison, Skadden Arps Slate Meagher & Flom, Shearman & Sterling, Sullivan & Cromwell, Weil Gotshal & Manges, Willkie Farr & Gallagher and White & Case are now all offering their first-year associates $160,000 (£81,200).
Although $160,000 is now the benchmark for the ‘class of 2006’, there was some movement at the top end. The comparative cheapskates were Cadwalader, Cleary, Clifford Chance, Weil and White & Case, where associate pay tops out at $280,000 (£142,100). The majority of firms, however, have played it safe by offering senior associates the same rate as Simpson Thacher’s $290,000 (£147,200).
There was also a herd mentality when US firms announced their bonuses before Christmas. Most kept their associate bonuses static on the 2005 figure, ranging between $30,000 (£15,200) and $65,000 (£33,000), depending on seniority.
That means an average newly qualified lawyer in New York will take home a whopping $190,000 (£96,000) this year – enough to make a newly qualified at Linklaters green with envy. By comparison, the most industrious newly qualifieds at Linklaters, the most generous of the magic circle firms, can potentially earn an overall package of £77,140.
And what of London associates at US firms? So far, three (Cleary, Dewey and Milbank) have confirmed that their London lawyers will share the bounty and enjoy an immediate raise equal to their New York colleagues’.
US firms do not necessarily pay their associates the same in London as they do in New York. And it does not necessarily follow that all will automatically raise their London rates. Shearman will hold out until May before reviewing London associates’ pay. And Clifford Chance is planning no short-term London raises.
Given that the magic circle’s own pay war only happened last autumn, recruiters predict that it is unlikely that the announcements from New York will have a massive effect on City salaries.
Joanne Street, a business manager at Hays Legal, says: “I can’t see that City firms could go any higher, particularly when it appears there may be a slowdown in M&A. I think this will impact more on US teams with US lawyers at UK firms rather than City firms across the board.”
Last year it was Simpson Thacher’s rival Sullivan & Cromwell that sparked the rush on associate pay. Sullivan was the first to raise salaries from $125,000 (£63,400) to $145,000 (£73,600) last February, and most firms in New York, and indeed beyond, were quick to match Sullivan’s generosity.
Of course, Sullivan could be forgiven for being a little slow off the block this time around (although not too slow: it announced its salary hikes a day after Simpson Thacher).
It has its hands full with managing other associate-related problems: a headline-grabbing gay discrimination suit and an attrition rate of more than 30 per cent. One can only assume that a $15,000 (£7,610) raise in base salaries will encourage those associates to stay.
Last year’s salary race came in February, which means those lucky New York associates have experienced a massive 28 per cent payrise in just 11 months.
This indicates that firms are no longer facing rivalry from other firms alone for their associates. Commentators point to the strong lure and the big bucks, and even bigger bonuses, of the investment banks, private equity houses and hedge funds for which legal salaries are peanuts.
“The leading investment banks are still hiring finance lawyers in both London and New York,” says Street. “Associates in firms see that their friends at Goldman Sachs can earn three times what they can.”