Slaughter and May today (30 April) became the first major City law firm to announce a review of its associate pay bands – triggering minor rises in the underlying rates its lawyers earn from trainee level to three years post-qualification.
Newly-qualified see salaries rise from £61,500 to £63,000; one year PQE pay rises £500 to £69,500; two year PQE from £76,500 to £78,000; three year PQE earn an extra £1,500 at £87,500. Trainee salaries are up by £1,000, increasing to £39,000 in year one and £44,000 in year two. The rises kick in from 1 May.
This is, of course, in addition to the sizeable increases as associates pass through the ranks. Commenting on the move, Slaughters’ incoming executive partner Richard Clark said: ‘Our view remains that the economic climate is still uncertain but we are cautiously optimistic for the rest of 2013.’
While these are substantial sums, they remain well below the peak offered in 2008, when magic circle firms were paying around £66,000 for newly-qualified solicitors. That figure has been substantially eroded by inflation and Freshfields Bruckhaus Deringer’s controversial (but justified) decision in 2009 to halt its associate lockstep progression, which was widely followed.
The latter move effectively reset UK associate compensation downwards by around 10%, going a long way towards making boom-era cost-bases adjust to the post-Lehman environment.
It remains likely that other peers will follow Slaughters with comparable modest rises this year but the underlying picture hasn’t changed. City firms are using inflation and the straightjacket of associate lockstep to control salaries while demand remains subdued. Indeed, many observers believe associate pay is still too high given the gloomy market.
However, such assertions probably understate the substantial shift since 2009 in that associate pay has rapidly moved from the entirely dominant lockstep to a more flexible, merit-driven version. Though the jargon differs between firms, the basic idea is the same: seniority-driven pay to three year PQE, soon after which kicks in some form of discretionary promotion or assessment that defines salaries and career tracks. While the mid-tier pioneered it, Freshfields’ recent introduction of a four-stage ‘milestone’ framework was hugely significant. Even the famously conservative Slaughters is currently bringing in some grading beyond the four year PQE point.
This is a considerable and rapid shift by the standards of City law. Despite the oft-repeated claim that most partnerships have ditched lockstep, the majority of top 50 UK firms deploy only moderate variations on the seniority-based equity ladder. And that is after a 20-year evolution of dishing out the profits. In comparison, associate pay is being redrawn far more quickly.
Largely, that’s a good thing. Associate lockstep is slow-moving, inflexible, prone to transmitting excessive wage inflation and tends to deliver pay rises at the wrong point in the economic cycle.
This decisive break with the old model is very different to the US. Major US advisers have kept compensation heavily structured post-qualification despite the downturn, so far with problematic results. As yet there is no sign of that consensus breaking down in the world’s largest legal market, despite increasingly bad-tempered – and rather ill-directed – grumbling from clients about ‘paying for training’.
You don’t have to be a legal futurologist to believe that this relative flexibility will stand UK firms in good stead in the years ahead as they strive to reinvent and renew their businesses for a more disruptive and demanding age. Still, with US rivals making ground in the City, and continuing to offer a lot more for junior talent, phasing out lockstep remains a tricky balance to strike. Just not tricky enough to stop it happening. That means comp’ for junior lawyers will be pushed down and a select band of mid-level associates in hot practices areas will be earning more in the years to come.