War for talent among lawyers as US ‘white shoe’ firms step up presence in UK
Written by Hit Music Radio News on 14/07/2021
Lawyers are not necessarily used to feeling loved but, right now, they are certainly the target for the affections of many law firms.
The Times, historically the newspaper best-read among members of the legal profession, reports today that Macfarlanes has become the first City law firm outside the so-called Magic Circle to pay newly-qualified solicitors packages worth £100,000 per year.
It said that Macfarlanes has raised its base salary for them from £85,000 to £90,000 and is also offering an “uncapped” bonus which, this year, was worth nearly 10% of annual salaries.
The move comes amid a war for talent that is raging among top law firms in London.
The five firms in the Magic Circle – Slaughter and May, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters and Allen & Overy – are traditionally the best payers in the City’s competitive legal sector.
The best paid of all are those who reach partnership status in these firms.
For example, profits per partner – a measure of how much partners are paid – hit £1.82m at Freshfields in 2019-20, the most recent year for which figures are available.
The figures were £1.69m at Clifford Chance, £1.63m at Allen & Overy and £1.61m at Linklaters.
The equivalent figure at Slaughters is not known but has been estimated in the legal press to be more than £2m.
Profits per partner are a matter of great pride and prestige in an industry in which egos can be every bit as inflated as in related fields like investment banking.
They are a good barometer of how successful and financially solid a law firm is and, of course, everyone wants to show how they are biggest.
There are two key areas of competition.
One is for lawyers in their mid-40s with a couple of decades of experience under their belt.
But the most fiercely-fought competition right now appears to be in newly-qualified lawyers where, during the last decade, salaries have exploded.
The Lawyer reported earlier this year that salaries for this category at Slaughters rose from £61,500 in 2011 to a peak of £92,000 in 2019.
They then slipped back to £87,000 last year before rising again to £90,500 this year.
Clifford Chance, it reported, is at £100,000 and Allen & Overy at £95,000.
Even a first-year trainee solicitor, in other words someone straight out of college, at Slaughters will be paid £47,000 this year, rising to £52,500 in their second year.
The reason for the salary war is that the big US law firms are increasingly making their presence felt in London.
It emerged last month that Vinson & Elkins, based in Houston, Texas, was paying newly-qualified lawyers in London a salary of £153,400 – making it the best payer in town.
Close behind is Davis Polk & Wardwell, one of the so-called “white shoe” law firms – a term roughly equivalent to the “Magic Circle” here – that have dominated US commercial law for the last century.
Davis Polk, whose clients included investment banking pioneer John Pierpont Morgan and whose clients to this day include JP Morgan Chase, has just raised pay for the newly-qualified to £147,000.
It did so in response to salary increases at Milbank, another “white shoe” firm, whose London headquarters close to the City’s Guildhall were designed by the architects Foster + Partners.
Other traditional US firms making waves in London include Shearman & Sterling, whose past clients have included the Rockefeller family and Henry Ford, and Cravath, Swaine & Moore, another storied old New York firm, which last year represented Epic Games, the maker of Fortnite, when it sued Apple.
But it is not just the old “white shoe” names – the term is a reference to the white buckskin shoes often worn by the graduates of Ivy League universities that traditionally made up their intake – challenging the hegemony of the Magic Circle.
Other US firms poaching talent with competitive wages include the likes of Chicago-based Kirkland & Ellis, which has grown rapidly on the back of advising private equity firms and which recently created a stir in London by poaching Gregory Scott from Clifford Chance, just days after the latter had promoted him to partnership status.
Other high-rolling American employers from outside the traditional “white shoe” groupings known for paying big money in the UK include Los Angeles-based Latham & Watkins, the first US law firm to notch up annual revenues of more than £3bn and New York-based Weil, Gotshal & Manges, one of the first big American companies to expand overseas.
Both also have big practices advising private equity – which is where the war for talent is at its fiercest.
The bulking-up of UK operations by the US law firms is having some interesting consequences.
One is that the old “lockstep” method of paying partners, under which partners were paid according to how long they had served with the firm rather than based on their performance, is gradually being replaced.
Ironically, the system was devised by Cravath, but is gradually being abandoned in favour of a more flexible arrangement under which partners are paid according to their performance.
The new arrangement is more similar to the “eat what you kill” performance-based pay structures more commonly seen in investment banking.
Magic Circle firms that have already abandoned lockstep include Freshfields and Allen & Overy – although others, such as Slaughters, remain wedded to the system on the basis that it fosters more of a collegiate atmosphere in which colleagues work together rather than trying to out-do each other in terms of billing hours.
Another consequence of the war for talent is that, for the first time, women are being elevated to the top tier of what were seen traditionally as clubby, male-dominated environments.
For example, Freshfields elected Sydney-born Georgia Dawson to be its senior partner in September last year, the first time a woman had been elected to the role.
She has since unveiled a number of targets aimed at broadening diversity of leadership in the firm with the aim of ensuring that at least 40% of partner promotions during the next five years go to women.
Fewer than a quarter of its UK partners are currently women.
More recently, in May this year, Aedamar Comiskey was elected as the first female senior partner in the 183-year history of Linklaters.
The US firms will not have it all their own way.
Freshfields, Linklaters and Clifford Chance were all in the top five of a league table prepared last year by the market intelligence specialist MergerMarket in which law firms were ranked by the total value of deals on which they worked.
Moreover, the Magic Circle firms still have deeper pan-European operations than those of their US counterparts, as well as providing a wider range of services.
But the momentum feels as if it is shifting in the direction of the big US players.
There is still plenty of cachet attached to working for a Magic Circle firm – but that alone cannot compete with the riches available from their huge US rivals.
© Sky News 2020