Salaries spiral as US law firms and in-house teams stalk top lawyers

Rewarding fee earners is the key to retaining staff says Claire Smith, as survey shows lawyers' salaries leaping 15 per cent.

Salaries in law firms are continuing to rise rapidly - some up by as much as 15 per cent on last year - because of a shortage of lawyers.

Firms are under pressure to increase wages due to competition from both US law firms and in-house legal departments for their staff, according to a survey by recruitment consultants QD Legal in association with The Lawyer.

"There is a real shortage of quality lawyers, particularly at the two to five-year qualified level, and it's pretty similar across the board," says managing consultant at QD Legal Greg Abrahams.

"There's a very buoyant economy and firms are facing a lack of lawyers rather than a lack of work."

John Barnard, international human resources director at Clifford Chance, says: "There are some areas of the market that are tight at the moment, particularly corporate and finance. The market's buoyant and there's lots of work around, and quality people are always in short supply.

"In-house is a very attractive option and that's where a lot of people are going. The opportunities available there are good, and it's another area we are competing against.

"We have to look at the whole proposition of what it's like to work at Clifford Chance. It's about salaries, benefits, quality of life, training and opportunities for international secondments. We have got to put together a whole package, and lots of firms are looking to be more creative about how they award people."

The survey shows that the one to five-year qualified lawyers are in the highest demand, particularly in practice areas such as corporate, property, finance and banking where salaries tend to be higher.

For many years the US firms in London have been blamed for putting upward pressure on wages, particularly at top City firms.

The US firms are increasingly developing new practice areas other than corporate and finance - such as property, employment and IT - and have been pushing wages up in those areas.

"Inevitably the pressures of globalisation are beginning to tell on us all," says Simmons & Simmons senior partner Bill Knight. "A number of US firms are in London and they are not bearing the training burden, so it's easier for them to pay higher salaries."

Abrahams says firms have got to realise the competition is no longer only coming from other law firms. He says a lot of young lawyers see their contemporaries in other fields making a lot more money and are attracted to other industries, such as information technology.

He says: "There's always been competition from industry, where it's perceived that there is a better quality of life. It does seem that lawyers in their twenties, who weren't brought up in the 1980s work ethic, prefer the caring sharing 1990s approach.

"To retain them you have got to pay them more and develop initiatives such as bonus schemes and new training methods. That attitude also effects the number of lawyers that are on the market in private practice, all of which pushes pay up."

But Knight says: "We don't see the in-house legal departments as a threat, because they offer a completely different package. If you go to industry you get share options and other benefits, and it's a different career."

As well as putting pressure on salaries, the shortage of lawyers in a such a competitive market means that firms have to find ways of holding on to their fee earners.

As revealed by The Lawyer (7 June 1999) firms including Clifford Chance, Olswang and Berwin Leighton are introducing bonuses.

Abrahams says: "Not all firms offer bonuses, but an increasing minority do."

In large City firms, for example, incentives range from one-off bonuses of up to 30 per cent of salary, to a month's salary as an additional bonus throughout the firm. Practice areas most likely to benefit are banking, finance and corporate.

Berwin Leighton managing partner Neville Eisenberg says: "What we really wanted to do was modernise the way we compensate fee earners and make life a little bit more exciting for them."

Most of the large City firms are due to review their salary structures in the late spring, and adjustments will no doubt be made to react to the current shortage of lawyers.

QD Legal Benchmark 2000 is available at the end of February priced £34