Several prominent UK law firms are endangering their expansion and ability to contend with US competitors due to major disputes over salaries. This increased cost, amidst aspirations of growth, has been an added strain for top UK firms that were already bearing the expense of ambitions to expand during an economically slow period for transaction work, a key driver of their revenue.
Recently, Linklaters announced a salary raise of 20% for newly-qualified lawyers, following a comparable move by Freshfields Bruckhaus Deringer. Consequently, these individuals will see their income increase from £125,000 ($157,000) to £150,000 ($188,000).
The intense competition from UK firms’ American counterparts, which have significantly expanded their presence in the London market over the last decade, has compounded the issue. Other factors such as Brexit and the diminished value of the pound against the dollar have also dealt blows to UK firms.
Traditionally dominant players like Allen & Overy, Clifford Chance, Freshfields, Linklaters, and Slaughter and May – typically known as the Magic Circle firms – have seen their hold on the London legal market wane in comparison to where they stood a decade ago.
The recent salary increments at Freshfields and Linklaters have helped them lessen the wage disparity with US law firms, which commence their pay scale at $225,000 for first-year associates. This disparity in pay has now decreased to 12% to 15%; previously, it was 35% to 40%.
However, raising the salaries of newly-qualified attorneys may lead to potential consequences for UK firms. With higher costs being a part of its fixed costs, this spells out trouble for Linklaters, for instance, which is looking to recruit in the US. Therefore, the salary increases may impede growth strategies and result in a potential loss of more employees.
On the other hand, as UK firms ramp up their salaries, US firms might also feel compelled to maintain their edge. The salary difference at entry points, which was traditionally around 30% to 40%, is now closing in. As such, there is an expectation that US firms might respond by raising their own salaries once more.
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