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2011 UK law firm salary reviews - an update

By Robina Clough

 

It’s now two weeks since Slaughter and May set the ball rolling with this year’s UK law firm salary reviews.  Since then, half a dozen other firms have announced what they will be doing with associate level pay for 2011/12. And the verdict so far? Much of a muchness really. There have been some very slight increases (in the order of c. 1.5% to 2.5%), others have chosen not to make any changes at all and at least one firm has decided to shake things up altogether by moving away from lockstep pay towards a more merit-based system.

 

As mentioned before (see previous coverage of 2011 UK law firm salary reviews below), undertaking any sort of analysis as to where this leaves associate salaries at any given firm compared to a) the competition and b) previous years' levels is a full-time job in itself and not something most busy HR managers have too much time to investigate.  Luckily, we’re very passionate about the subject, so here’s a few key (and hopefully interesting) highlights.

 

 

Slaughter and May 

 

 

2011

2010

+/-

NQ

61500

61500

0

1

69000

68000

+1.5%

2

76000

74000

+2.7%

3

86000

84500

+1.8%

 

Allen & Overy

 

 

2011

2010

+/-

NQ

61000

61000

0

1

68000

68000

0

2

74000

74000

0

3

85000

85000

0

 

 

Linklaters

 

 

2011

2010

+/-

NQ

61500

61500

0

1

68000

68000

0

2

73000

73000

0

3

85000

85000

0

 

 

Freshfields

  

 

2011

2010

+/-

NQ

61500

60000

+2.5

1

69500

68000

+2.2

2

77000

75000

+2.7

3

88000

86000

+2.3

 

 

 

Other Firms

 

Norton Rose has increased its NQ salary by 1.7% from £59,000 to £60,000. Above this level associates are paid on a merit-based system rather than the traditional lockstep.

 

Simmons & Simmons has chosen to freeze its NQ salary at £59,000. It too uses a merit-based remuneration system for associates with 1+ pqe.

 

Barlow Lyde & Gilbert has completely rejigged its associate pay structure and from this year will move to a new merit-based system structured around 3 ranks – associate, senior associate and legal director. NQ salary has yet to be announced.

 

All in all, based on what we have seen so far, it seems that 2011 salaries are going to remain flat, or increase by a maximum of c.2.5% for any given level of pqe.

 

 

 

A pay rise which ever way you look at it

 

Whist some are grumbling that below inflationary increases (or indeed no increases) in salaries are perhaps a little miserly, it is imperative to point out that, unlike 2009, there has not been a blanket freeze on salaries and in all cases reported so far, associates will move through the lockstep to the next pay band.

 

To illustrate the point, the table below shows the year on year increase in gross pay (excluding any bonuses) a typical 2007 qualifier at a magic circle firm will have enjoyed over the last few years, despite the fact we have faced an unprecedented tough economic climate. The total increase over the course of the last four years is in the region of 50%.

 

 

2007

2008

2009

2010

2011

Base Salary

£63,500

£71,500

£71,500

£84,500

£94,500

% Increase

-

12.6%

0.0%

18.2%

11.8%

 

 Year on year salary increases for a 2007 qualifier

 

Lockstep vs merit-based pay

 

The news on which firms are paying lockstep and which are opting for a more merit-based approach is itself almost as eagerly anticipated as the actual numbers.

 

The ubiquitous lockstep model is the one we all know and love. It’s been around for decades and is widely implemented across the UK commercial legal market, by both UK and US law firms. Essentially, it is designed to increase a lawyer’s salary directly in line with the number of years’ experience they have accumulated. The major advantage of this system is that it is totally transparent and there’s no second guessing involved in what an associate lawyer will be taking home. The major disadvantage, however, is that it doesn’t take into account the quality or quantity of an individual’s performance.

 

Merit-based pay systems do exactly what they say on the tin, although the criteria for assessment and the extent to which they are implemented across all levels or qualification varies hugely. Over the last three to four years, there has clearly been more of an appeitite for law firms to develop some semblance of merit-based pay structures and, as noted above, Barlow Lyde & Gilbert have introduced such a system this year. Ashurst, Addleshaw Goddard, Pinsent Masons and Norton Rose are fairly early pioneers of these type of structures and as recently as last year, Olswang, Simmons & Simmons, Stephenson Harwood, CMS Cameron McKenna, Squire Sanders Hammonds and Field Fisher Waterhouse introduced merit-based pay. Freshfields has been threatening it for a couple of years (the only magic circle firm to do so) as part of its “Milestones” framework, but this won’t materialise until 2012 at the earliest.

 

It is likely, in our view, that we will see a much greater propensity for merit-based pay in the next few years, or a hybrid merit/lockstep system at the very least.

 

Update: 20.05.11

US firm Shearman & Sterling, which has used a more merit-based approach to remuneration since 2010, is increasing salaries by between 7% and 15%. Entry level salary stands at £78,000 rising to £175,000 for senior associates.

 

Update: 25.05.11

Recently merged Hogan Lovells has increased its NQ salary rate by 1.7% from £60,000 to £61,000.

 

Update: 27.05.11

Herbert Smith will be keeping its salary bands at the same levels as 2010, which are also broadly the same as 2009 levels.

 

*******************************************************************

 

Previous coverage of 2011 UK law firm salary reviews (12.05.11)

 

It’s that time of year again. UK law firms are beginning to announce their reviewed 2011 associate pay levels. At this stage, it’s a mere trickle of declarations, but now that someone has taken the brave move of being the first to announce (stand up and take a bow Slaughter and May), it will likely only be a matter of weeks, if not days, before we get a clearer picture of  how much London associates will be taking home in their next pay packets. We had been predicting only small pay increases for 2011, at about (or just below) the level of inflation, but it seems even that was a slight over-estimation on our part. That said, a number of journalists and other legal commentators we have spoken to over the last few months insisted that, given the minimal increases (and in fact some decrease) over the last few years, there surely had to be more robust base salary rises in 2011.

  

Last week (5th May) Slaughter and May announced an increase (albeit modest) in the base salaries at each level of post qualification experience (“pqe”), excluding newly qualified (“NQ”). Those at the NQ level will continue to take home £61,500, where as the 1 pqe base salary increases by 1.5% (from £68,000 to £69,000), at 2 pqe by 2.7% (from £74,000 to £76,000), at 3 pqe by 1.8% (from £84,500 to £86,000) and at the 4 pqe level by 1.6% (from £93,000 to £94,500). Unlike many UK law firms, Slaughters conducts bi-annual salary reviews and will be looking again at its figures November.

  

And now Allen & Overy has announced an out and out freeze of its pay bands. A spokesman for the firm said that they had decided not to increase salaries due to relatively flat turnover for 2010/11.

 

As with many UK law firms, in 2010 both Slaughter and May and Allen & Overy announced only small rises on the previous year and in 2009, salaries in effect actually decreased – at least the amount at each level of pqe was a reduction on 2008 (see 2010 salary udpate for an explanation of pay freeze vs pay reduction).

  

Some “anonymous” associates are bemoaning the fact that there are no pay rises at Allen & Overy and that Slaughter and May is offering below inflation increases. But what they seem to be missing is the fact that, given the very nature of the law firm lockstep model of compensation, even with zero, or minimal, increase in the actual band, by virtue of the fact that they are just one year more qualified, they will see an increase in their take home pay. For example a 2010 NQ at Allen & Overy currently on £61,000 will see an 11.5% gross increase when they become 1 year qualified. For 1 going on 2 pqe, this increase becomes 16%. For Slaughter and May associates this is about 12% at each level. Considerably more than inflation.

 

However, if you compare those increases with the equivalent step up the lockstep back in the boom days (let’s take 2007 as an example) an NQ at Allen & Overy becoming 1 year qualified would have received a staggering 30% increase in their gross pay and a 1 pqe becoming a 2 pqe an even more eye-popping 40% increase.

 

Getting your ahead around what an actual increase, decrease or no change in salary bands actually means in terms of take home pay for lawyers sometimes feels like you are trying to work out Pi to the twentieth decimal point, without a calculator. The tables below with historic salary information will hopefully illustrate some of the points above.

 

Changes in lawyer salaries at Slaughter and May 2006 to 2011*

 

2011

2010

2009

2008

2007

2006

NQ

61500

61500

61000

66000

63500

54000

1 pqe

69000

68000

66000

71500

67000

60000

2 pqe

76000

74000

71500

84000

78000

67500

3 pqe

86000

84500

84000

90000

86000

75500

*we believe these figures to be a valid representation of Slaughter and May salaries, but cannot guarantee 100% accuracy.

 

Changes in lawyer salaries at Allen & Overy 2006 to 2011*

 

2011

2010

2009

2008

2007

2006

NQ

61000

61000

60000

65000

65000

55000

1 pqe

68000

68000

65000

71500

71500

60000

2 pqe

74000

74000

71500

84000

84000

70000

3 pqe

85000

85000

84000

92500

92500

76000

*we believe these figures to be a valid representation of Allen & Overy salaries, but cannot guarantee 100% accuracy.

 

We eagerly await news from the other major players in the market: will they do a “Slaughters” and make modest increases, or will they “A&O it” and apply a wholesale salary freeze to their bands? Perhaps a plucky top 10 firm will feel affluent enough to announce something over and above inflation, but that seems increasingly unlikely. As Edwards Gibson partner Scott Gibson was quoted in The Times: “We think the days of big pay rises are gone in the medium term. More measured increases will return in the economy picks up, but if it continues to splutter that will be reflected in lawyers’ compensation” (The Times 12.05.11 p.39 “Allen & Overy sets trend for freezing pay of all newly qualified City lawyers”).

 

Update: 12.05.11 

Linklaters announced that they will be following in Allen & Overy's footsteps and will also be keeping 2011 associate salary bands at 2010 levels.

 

Update: 17.05.11

Norton Rose has announced it is increasing its NQ salary by 1.7% from £59,000 to £60,000. Above this level associates are paid on a merit-based system rather than the traditional lawyer lockstep.

 

Update: 18.05.11

Simmons & Simmons has decided to freeze its NQ salary at £59,000. It too uses a merit-based remuneration system for associates with 1+ pqe.

 

Update: 19.05.11

Freshfields have made small increases across the board for its associate salaries. NQ = £61,500 (up 2.5%), 1 pqe = £69,500 (up 2.2%), 2 pqe = £77,000 (up 2.7%), 3 pqe = £88,000 (up 2.3%)

 

 

© Edwards Gibson 2011

 

 

 

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Articles by Robina Clough

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