Magic circle firms’ prestige under threat as salaries at US rivals reach record levels
22 February 2010 | By Corinne McPartland
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The magic circle may no longer be the obvious choice for the UK’s top students after a survey highlighted the massive earning potential for junior lawyers at US firms.
Bingham topped the first-ever US salary survey carried out by The Lawyer’s sister publication Lawyer 2B, paying its newly qualified (NQ) lawyers £100,000.
The findings highlight the continuing gulf between the wages paid at leading City firms and those at their US rivals, even though some US firms, including New York’s Weil Gotshal & Manges, have recently reduced their salaries.
Firms such as Latham & Watkins and Debevoise & Plimpton pay their UK NQs £96,000 and £94,250 respectively, while magic circle NQ salaries range from £59,000-£61,000.
But Bingham London managing partner James Roome defends the fact that his firm is prepared to pay above the odds for its NQs.
“Bingham’s a relatively small firm in London,” he says. “We take on average only two trainees a year, not hundreds, so our trainees and young associates have a lot more responsibility from the beginning and we do expect them to be client-facing, so we want to stay at the top end.”
Roome also points out that the eye-watering salary has been affected by exchange rate movements, which played a part in making the firm the first to break the £100,000 barrier.
“There are quite a number of other American firms in London paying their NQs New York rates or transatlantic rates,” he insists. “We’ve had the same NQ rate in New York for two or three years now and our London junior lawyers have been earning the same.
“I think the fluctuation of the exchange rate may have brought the London pay up slightly.”
The firm, which typically hires two trainees a year, denies that it sets chargeable hours targets for NQs and first- and second-year trainees, who earn £40,000 and £45,000 respectively.
But even though Bingham’s NQ salary is only a few thousand pounds above Latham’s, rivals in the market are questioning whether it is sustainable in the long term.
“I don’t think it can be sustainable for them,” says the graduate recruitment partner at a rival US firm. “Everyone’s talking about moving away from the PQE structure and I can’t see Bingham sticking to paying its NQs such high salaries.”
That said, Bingham’s strong performance in the last financial year would suggest that it can sustain such payments, especially given that the salary is paid to such a tiny group of people each year. The Boston-headquartered firm’s London office posted a 31.6 per cent increase in turnover on the back of a significant rise in restructuring work in 2009 to $40.8m (£25.6m). The firm also posted a significant rise in revenue per lawyer, up by 23 per cent from $816,000 to $1.05m.
“We have a countercyclical practice with a lot of debt restructuring and contentious work and we’ve managed to grow year-on-year,” Roome explains.
So with apparently more responsibility, greater respect and bags of money, are US firms proving an attractive alternative to would-be lawyers?
One magic circle partner claims that “students aren’t stupid” and will realise that working for a firm that is paying £100,000 will bring with it “certain expectations”.
“They’ve effectively bought your life,” he states. “Of course the London trainees and NQs have to feel on parity with their US colleagues, but I think the really talented students will still come to the top firms because of the great training and reputation.”
He also insists that there is an ethical question that goes along with hiking NQ pay to such an astronomical level.
“There are concerns that when you start paying those amounts you’re locking young people into a career that they might not enjoy,” he says. “You’re almost creating a golden handcuff scenario whereby people can’t leave the profession because it would mean a massive lifestyle change.”
Another question raised by critics is the reasoning behind the pay hike. Is it a move designed to encourage more applications for training contracts, or is its aim to make sure it retains its trainees both upon qualification and beyond?
Certainly the single trainee who the firm hired in its first intake in London in 2001 has stayed put. But of the two trainees who joined the firm in autumn 2009, only one has been given a job.
Regardless, Roome insists that the salary is not a “volume game” for the firm.
“We’re trying to get in people who don’t want to just work for us short-term,” he insists. “We want people who themselves are the best of the best and who want to work for a firm where they’ll be client-facing and treated as an individual, not just lost in the basement of a large law firm.”