Legal industry news, trends and reflections (April - May 2024)

As well as our monthly LinkedIn newsletter dedicated to summarising a few topical legal current affairs each month, we're now also publishing monthly reflections on legal industry news and developments (via this same newsletter, as well as our free blog).

These reflections are offered by Luke Mitchinson, who worked for years as a transactional lawyer at both a Magic Circle and an elite US law firm, before quitting City law to work as a headhunter. He now helps lawyers from NQs through to partners secure roles at a broad range of commercial law firms.

Today's newsletter covers lawyer pay rises, an argument in favour of the NQ pay scale, the in-house trend, gender pay gap results, and why profit-per-equity-partner matters. But first...

1. University society partnerships

Last year, we worked with dozens of leading law and commercial awareness-related societies from a broad range of UK and European universities.

Their members benefitted from access to a comprehensive range of free expert-led resources and career support, including best-selling books, critically-acclaimed courses, and more.

We're now looking to set up our 2024/25 society partnerships, so if you're on an exec committee, please email me via information@citycareerseries.com (or drop me a LinkedIn message) so that I can send over the details of what we're offering.

If you know someone else who's on an exec, please tag them in this post to help spread the word! 

2. FREE live June 2024 current affairs wrap up

On 1 July 2024 (5pm), myself (Commercial Law Academy founder) and Peter Watson (ex-stock broker, head hunter and founder of Watson's Daily) will once again be delivering a FREE webinar to summarise the key current affairs and trends from June 2024, including insights from a business, markets and legal perspective.

Register for free via this link.

Legal industry news, trends and reflections from April - May 2024

Please note that these articles do not constitute legal advice and should not be relied upon. They simply reflect the author's research and opinion, and do not represent the views of Varo Partners Limited.

Over to you Luke...

Linklaters increases NQ salary to £150,000

18 May 2024

💰 Well, that didn't take Links long did it? 💰

Just 10 BDs after Freshfields announce its game-changing salary hike, Links match them. A lot of commentators, including myself to be fair, were not totally sure if the other MC firms would match this big hike given its size - and certainly not within two weeks. Yet here we are.

FBD and Links have now put themselves in the 'US firm' arena when it comes to comp, which in my view now will go a long way to stop them being 'feeder firms' for their US rivals. 🇺🇸 ➡ 🇬🇧⁉️

Something I've been thinking about over the last two weeks is whether the move from FBD - and now Links of course - is so good that in fact it may well start attracting talent back from the US firms. I have it on very good authority that the bonus structures at these two MC firms all but brings the earning potential / total comp packages in line with their US competitors, especially when viewed post tax, and the number that actually hits your bank account.

Will the example factors below - beyond cash - now play a bigger role in moves to/from the MC firms:

• 'better' firm infrastructure with more trainees, support staff, and PSLs;
• bigger teams meaning (in theory) more consistent hours;
• bigger teams meaning better holiday cover (in theory);
• training, development, diversity, and promotion prospects; and
• Senior Associate paid sabbaticals (c.6 weeks of paid leave upon promotion).

The other group of people to consider too of course are those associates outside the MC at the moment, who want a step up in terms of work and comp, who previously might have looked to 'skip' the MC firms in favour of the US firms, will now very likely be bringing these MC firms back into consideration, meaning these MC firms have re-opened themselves up to an even wider lateral recruitment pool. Is the question of whether A&O Shearman, CC and Slaughters match these raises purely academic now? Do they have a choice? Is it only a matter of time? Probably. 🍻 Make sure you have your friends at these firms buy the opening rounds this weekend 🍻

Pay for newly qualified lawyers 

14 May 2024

💪 My defence of the London NQ pay scale 💪 £200,000 for an NQ?

I mean, we're already past this when you factor in bonuses and consider total comp anyway, but this isn't what I think rustles the feathers. Base salaries for NQs at US firms in London do seem to be heading towards the £200k mark, but these salaries are a reflection of what these firms pay their first year associates in the US.

As such, it really is only a matter of time that the Wall St giants pay their first years $250k, and therefore, their London based associates £200k. As an FYI, three years ago the pay for first years in the US was $200k and it's now $225k, so we're potentially only a few years away from the $250k mark assuming the pay scale follows a linear progression.

What I find most interesting are the sometimes visceral reactions these numbers have on some people. "How can an NQ be worth over £200k?!", "NQs don't know anything!", "How can firms justify paying juniors this much?!". The following two words do away with all of these 'points' in my view: Market. Forces. This is about the fight for the top talent, and just like any other industry, more often than not, the highest payers get (what they view as) the top talent and secure their firms' future. And that's it.

I know it frustrates, and often amazes (or even angers) some people that 23/24 year old NQs are getting paid more than a lot of Partners in the UK (genuinely) - and I understand where these feelings can come from, but unfortunately those people need to get over these feelings, because, like it or not (more often not of course), that's the market these 23/24 year olds opted to enter. And can you honestly blame them...?!

Furthermore, it's my view that UK NQs are better and provide better value than first year associates in the US. First year associates in the US are fresh out of Uni (/law school), and the first day they walk into a law firm having passed the Bar, they're an associate. Whereas UK NQ associates have two years of work and training under their belts, developing technical skills and soft skills throughout this time, therefore hitting the associate ground running compared to first year US associates - despite their extra few years of education in the States.

So, to be honest, the only things I have to say to to all the 23/24 year old NQs earning over £200,000 are: congratulations, kudos, and all the best 🫡

Why do so many lawyers go in-house? 

13 May 2024

💡 Thought Piece - why do so many lawyers want to go In-House? And is it all it's cracked up to be? 💡

I hear this all too often: “I’ll do this for a few [more] years, then I want to move in-house”. It seems that for a lot of associates out there, the legal career goal is to leave private practice as soon as it's viable - yet this a relatively new phenomenon, marking a pretty serious shift in career goals for most lawyers.

So what’s the draw to in-house? Being closer to the commercial team? Perhaps. Having a better work / life balance? Definitely. I’m not going to wax lyrical about the pro’s / con’s about staying in private practice or heading in-house, and this post isn't anti-in-house by any stretch, but given the biggest pull factor for in-house gigs is WLB, please consider the below before making the move:

• Don't underestimate the impact of what it will be like going from a revenue generator (i.e. a fee earner), to a business cost - no longer being part of the core driving force of a business, and rather be being seen as a cost (albeit a necessary one), can present numerous challenges.
• Potential lack of progression. Getting pigeon holed in the 'same' role for a long time and no longer having the guaranteed year on year progression (both in terms of rank/seniority and comp). This is typically more true the more junior you make the move.
• WLB. Is it genuinely better? In a word, yes. Of course it is. But the extent to which this is true depends on: (a) your current firm, its hours target / requirement and the team you sit in; and (b) the type of in-house role you want. To be extreme about things, I know of some in-house roles that will result in, on average, more hours worked across the course of the year - albeit these hours will be more consistent.

To be clear, I fully understand wanting a better work life balance - my personal career journey is evident of this. However, moving in-house - especially too early - isn't the only choice.

There are plenty of firms out there where a genuine WLB is very much achievable, and these kinds of moves avoid you having to deal with not being a generator for the business, and potential pigeon holing. Plus if you think about it, the 'best' in-house roles are 'reserved' for the more senior lawyers, so the longer you stay in private practice, the better your in-house role will be. Thoughts welcome!

Freshfields raises NQ pay to £150,000 

6 May 2024

💰 The rounds will be on the Freshfields associates this weekend 💰

Freshfields have dropped a HUGE pay rise ahead of the long weekend, putting them in the mixer with their US rivals and considerably ahead of its Magic Circle counterparts who remain at £125k. Freshfields have always led the charge when it comes to the 'Magic Circle' pay war and have come out strong once again.

Will the rest of the MC follow suit? History says yes, and that it's a matter of when not if, but this decision will not come lightly (and certainly not cheaply) for the other MC firms. The most interesting firm to watch out for is going to be A&O Shearman, as they recently confirmed that those qualifying from Shearman will come in on the A&O pay scale - meaning that those who started their TC's at Shearman expecting to qualify on £145k, will now actually be qualifying on £125k. But perhaps this move from Freshfields will force A&O Shearman's hand?

Freshfields have long been a 'feeder firm' for the US giants - especially on the Corporate and Finance side of things. The question now of course is: has the gap been closed enough? My feeling is (bearing in mind when I was training at FBD the NQ salary was £67.5k) that this salary rise will certainly keep more at Freshfields and have the intended effect - especially when you consider the number that actually lands in your bank account per month post tax...

Now clearly this is only the NQ salary, and as we all know, English firms 'bunch' salaries as associates move up the PQE ladder, so what will be key to understand is what things look like for 2nd, 4th, and 6th year associates and how these numbers compare to those HQ'd on Wall St.

But regardless of this, I think a large number of Freshfields associates will be extremely happy right now and will be putting a pin in any exit plans for at least a little while now. Finally, the cynic in me is a huge fan of the timing of this announcement being two days after the A&O Shearman go live date. Coincidence?

Magic Circle firms' gender pay gap results 

April 2024

👩💼 The Magic Circle's gender pay gap results are in for 2023, and (spoiler alert), the gaps have got worse in some metrics 📉

Ahead of my synopsis of the results, I will note that these results are fairly synonymous of the wider legal market as a whole, and the Magic Circle are some of the better performers here, but the concerning point with this is that, even the better performers are still a long way off parity. I'll briefly list out the 'usual' caveats and 'reasons' given for these results at the bottom, but why not dive right in to the results first... Freshfields:

• The mean gender pay gap since last year, has increased from 53.2% to 53.5%.
• The median gender pay gap was even more stark, jumping to 46.1% , from 14.8% the year before.
• At the trainee and associate level, there was a 4% gap in mean hourly rate of pay, which swelled to 12.6% when comparing bonus figures.

Clifford Chance:

• The gap widened when comparing the mean hourly rates, with women now, on average, earning 17.2% less than men, up from 16.7 % last year.
• The pay gap at the partner level has also increased by 1.4%.
• Things were slightly more promising on the associate front, with female associates getting paid on average 2% less then men, down from 4% last year.

Linklaters:

• Despite the firm having a female senior partner and women making up 50% of its ‘director group’, the gender pay gap sits around the 60% mark, with little change from the previous year.
• It had, however, managed to decrease the gap in mean pay between equity partners, which now stands at 17.8%.

A&O:

• While the mean gender earnings gap has decreased since last year, it still stands at over 50%.
• The pay gap at partner level was comparable to its counterparts at 17.7%.

Slaughter & May:

• The firm omitted gender pay gap data for partners, specifying that “as a full lockstep firm, all partners promoted at the same time are remunerated equally”.
• At the associate level, the firm revealed a pay gap of 1.3%, unchanged from last year, and “no bonus pay gap”.

Caveats:

• Some of the firms attributed the gaps to higher proportions of women in lower paying business support roles, as well as more women being compared to their firms’ mostly male highest earners as more women gain entry to the partnership.
• For an extremely long time, the biggest earners at 'all' law firms have been men, and owing to the very long career and lock-step renumeration model firms have, men have been paid more for longer and it takes time for that to materially change.

My question is: How long until parity will be achieved, and what can be done to accelerate this, if anything, given the lockstep model?

Why does profit per equity partner matter?

April 2024

📈 Numbers. Don't. Lie. 📈

Wachtell - the law firm with the highest PEP in the world - sits at c.$8.5m (i.e. only c.$500k more than Kirkland), but Wachtell only has 91 Equity Partners, compared to Kirkland's 500 Equity Partners, which amongst other metrics, really puts Kirkland's numbers into fairly staggering context.

Now, not to sound like Thanos, but Kirkland's continued growth really does seem unstoppable / inevitable... Kirkland posted average profit per equity partner of $7.9m in 2023, up nearly 6% from $7.5m the previous year, with its revenue hitting $7.2bn last year, up from $6.5bn in 2022, an increase of more than 10%. A revenue increase of 10% YoY, in a year that many firms have said was a turbulent year, is particularly impressive, especially in the backdrop of the significant headwinds in the private equity industry — a key source of clients for Kirkland of course — where high interest rates have hit dealflow.

Its 'closest' revenue competitor is of course Latham, but even Latham are over $1bn behind them, so I can see why some commentators might take the view that Kirkland really are in a league of their own. All lawyers at all levels from all firms will have their views on Kirkland, however, what is now truly impossible to ignore or deny, is that they've got their global growth strategy absolutely spot on.

For enquiries, get in touch with Luke via his LinkedIn profile.

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