Legal Business Blogs

Comment: The associate pay smoke screen is fooling no-one

Associate pay used to be simple. Lockstepped and transparent to the nth degree on both sides of the Atlantic, you knew exactly where you stood and exactly when the legal market was overheating.

There were obvious downsides to such transparency. Back in the late 1990s/2000s boom, a salary war triggered by Palo Alto law firms within weeks translated into huge hikes in New York. Soon enough London followed when SJ Berwin announced 25% pay hikes that spread through the market like wildfire. This was the first age of the online message boards, which further stoked the inflationary pay cycle.

This dynamic has remained dominant in the US legal market, even as general counsel have increasingly moved to clamp down on rates amid $180,000 packages for entry-level attorneys, leading to the increasingly common stance of writing off junior lawyers’ time.

In contrast, the gradual move to a more meritocratic system over the last decade among City firms had much merit to it, ushering in more flexibility, particularly at the crucial mid-associate level.

Much less credible has been the emergence over the last two years of suspiciously co-ordinated attempts by London firms to obscure what they are paying even their most junior lawyers. This has occurred as another run of pay hikes have washed through New York and London.

The reason for this reticence is plainly obvious: UK firms are increasingly unable to compete with more profitable US rivals and are attempting to obscure the fact.

You can be unimpressed with the market-defying straitjacket of the US model and still believe such tactics lack any credibility. For one, you would have to believe that aspiring and junior lawyers will not clock the large discrepancy – fanciful given the numerous online resources that exist to disabuse them of such notions.

Secondly, there is nothing new about large pay gaps between US and UK rivals, so what is to be gained by trying to obscure the point is unclear, though it will certainly make City leaders look evasive. With sterling likely to remain on the floor for the foreseeable future, it will probably get worse and there is not much point pretending otherwise.

Part of the underlying issue is the industry’s remarkable resistance to segmenting into clear bands that can find their own market rate for associates and partners. To an extraordinary extent the industry blurs and crosses over itself, and most City firms have consistently failed to have much of a debate about what they should and should not do in the post-banking crisis age.

But more immediately, City firms should be realistic that the old myths that have sustained this US pay differential are rapidly losing potency. Few associates believe that all US firms will beast them with no prospects of partnership, at least against the yardstick of City rivals trying to squeeze out more hours while offering less job security.

Magic Circle firms still hold some cards in terms of training and developmental opportunities – albeit not to the extent that they did ten or even five years ago – and associates are not only motivated by money. Yet, if City leaders are increasingly forced to play up non-financial rewards, they will have to work a lot harder to live up to and articulate that message. Because getting coy on the numbers is not going to fool anyone.