Last summer New York-headquartered titan Cravath, Swaine & Moore upped the annual salary of its US junior lawyers from $160,000 (c. £130,000) to an eye-watering $180,000 (c. £147,000), sending shockwaves through the US legal market.
Keen to stay competitive for the top legal talent, many US outfits quickly followed suit. While US lawyers celebrated their latest cash windfall, the term ‘MoneyLaw’ was coined.
What happens over there can happen over here, so are UK lawyers also up for a financial treat?
First we need to clarify what hasn’t happened (or at least hasn’t happened yet). Top-paying magic circle firms don’t come close to the starting salaries now flooding the US market. Both Clifford Chance and Freshfields Bruckhaus Deringer offer a very respectable £85,000 a year to newly qualified (NQ) talent. That’s still a whopping £62,000 off the new US pace. And there’s been no indication that they will follow suit.
There are a few lucky London lawyers working at US firms who have benefited from the US pay increase, though; Akin Gump, Simpson Thacher, Milbank, Cadwalader, Davis Polk, Kirkland & Ellis and Latham & Watkins have all matched New York pay levels at their London bases. Some firms, including Kirkland & Ellis, are reportedly paying their UK lawyers in US dollars too. So thanks to post-referendum value shifts of the pound, these lucky associates could see their salaries rise even further.
Tony Williams, a former Clifford Chance managing partner, believes that lower-paying London-based firms won’t make any rash pay increases. He says: “Law firms will adopt a wait-and-see approach” before rushing to match US pay increases.
The big money on offer from US firms means that they offer a small but select number of London-based training contracts. Milbank, Cadwalader, Akin Gump, Davis Polk and Simpson Thacher offer only a handful of trainee positions in the UK. Meanwhile, Latham & Watkins and Kirkland & Ellis offer around 20 and 12 training contracts respectively. To put this in context, Linklaters and Clifford Chance will offer over 200 trainee positions each year between them.
This exclusivity means top US firms in London can pick and choose the very best law graduates for their limited training contract places. A strong 2:1 (if not a first-class degree) is a must. Akin Gump makes it clear that applicants must have “outstanding” academic credentials, while Davis Polk stipulates that training contract applicants must have “exceptional academic ability”.
MoneyLaw also means that US firms can tempt magic circle-trained lawyers with much higher pay packets. One recent NQ, who switched his trainee firm for a high-paying US outfit, explained: “The big money and better quality of work on offer were just too appealing.” So MoneyLaw may actually be a double-win for many London NQs.
The reason for this is simple: US law students leave law school with massive levels of debt. An aspiring lawyer in the US can owe as much as $160,000 (c. £130,000) without any financial assistance from US firms. To compensate, the firms traditionally offer bigger salaries to their young legal talent, knowing a large percentage of each month’s pay cheque will be used to cover those huge university debts.
Meanwhile London NQs leave university with much lower levels of debt, but they’re still offered the same salaries as their US counterparts.
The statistics do show that US firms expect you to work harder for that extra cash. Kirkland & Ellis and Latham Watkins both pay their NQs around £124,000 and expect their London lawyers to clock up a hefty 1,900 billable hours a year. Compare that to NQ lawyers at London-headquartered Simmons & Simmons, who are paid £68,000 and have a yearly billing target of 1,435 hours, and there’s a clear correlation between pay and expected work hours.
MoneyLaw might be a truly American story but there’s definitely a UK chapter that lawyers (and law students) should pay attention to.
A version of this article, written by Thomas Connelly, appeared in our Verdict magazine.
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