edwards gibson informed connections
+44(0)20 7153 4903

UK Law Firm Market Report July 2011

UK Law Firm Salaries

 

Six months ago, we predicted that there would be very little movement in associate salaries at UK law firms when it came to 2011 reviews. At best we thought they may be at (or around) inflation, but with inflation currently sitting at 4.5% we thought even that might be a little optimistic.  It seems our predictions were in the right ballpark (if not a little optimistic) and, whilst that means we’ve missed out on the excitement and sensationalist reporting of market busting salary increase of 2005, 2006 and 2007, we are at least reassured that our assessment of the legal market is not too far wide of the mark.

 

We have become accustomed in recent years to some UK law firms announcing their salary reviews as early as February or March. This year we had to wait until May – perhaps a sign that firms have been waiting until 2010/11 financials to come in and budgets for 2011/12 are firmly set before deciding whether there was any scope (or rationale) for increasing salaries. This year Slaughter and May was the first to announce, with small increases in bases salaries (varying between 1.5% and 2.7%) for all levels of post qualification experience (pqe) except the newly qualified (NQ) level which would remain at £61,000.

 

In quick succession, other firms began to announce their positions, with some opting for an out and out salary band freeze (Allen & Overy, Linklaters and Herbert Smith for example) and others choosing small increases (Freshfields, Clifford Chance and Hogan Lovells).

 

Of the firms that we have specific salary details from* about half seem to follow the traditional lockstep model and the other half have either a lockstep/merit hybrid (such as a set NQ and 1 pqe salary and flexibility above that) or a pure merit based system.  The table below gives a broad summary of those firms that have moved to a merit based approach:

 

Addleshaw Goddard

Ashurst

Barlow Lyde & Gilbert

Berwin Leighton Paisner

CMS Cameron McKenna

Field Fisher Waterhouse

Nabarro

Norton Rose

Pinsent Masons

Simmons & Simmons

Squire Sanders Hammonds

Stephenson Harwood

 

 

There are many arguments for and against moving to a merit based system of remuneration but there is no doubt that there has been a general acceptance and shift towards this in the last two or three years. We anticipate that it is likely 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.

 

As we’ve previously commentated, regardless of whether or not firms decide to increase their salary bands, associates will, by natural progression through the lockstep, see an increase in their pay packets. To illustrate the point, the graph below shows the year on year increase in gross pay (excluding bonuses) a typical 2007 qualifier at a magic circle firm will have enjoyed over the last few years, despite the tough economic climate.

 

Year on year salary increases  

*A note on confidentiality

 

Whilst much of the information about associate lawyer salaries becomes immediately available in the public domain, for our wider understanding of the market, we rely heavily on confidential information from our trusted clients. For this reason, we are happy to give general information about trends and bespoke information, but will not disclose specific information about a particular law firm’s salaries unless already available in the public domain.

 

Click here for previous coverage of UK Law Firm 2011 Salary Reviews

 

 

UK Law Firm Financials

 

Of those law firms that have revealed their 2010/11 financials so far, it seems that, for the majority of the mainstream commercial UK law firms at least (there are a few noteworthy exceptions), turnover is on the up. It’s not just turnover that is grabbing the headlines: profit per equity partner (PEP) seems to be up across the board, in some cases by extraordinary amounts.

 

It is worth noting that many of the increases that firms are boasting are not even as much as inflation, but the fact that they are positive rather than negative is at least a vaguely encouraging sign. The results have no doubt played an important part in the decisions that have come about regarding associate salaries, as discussed above.

 

 

 

The Effect on Recruitment Levels

 

Whilst recruitment levels at City law firms are nowhere near those of 2006/7 (we estimate current activity to be about 65% that of those heydays), these relatively encouraging financials could pave the way for a further loosening up of the market. With a little more breathing space in the profit and loss accounts, partners and their HR departments can hopefully expect to see timelier headcount clearance and more of a sense of forcefulness  (if not quite urgency) in the recruitment process. Couple that with a desire to bring on board the best candidates in the market, we could see more incentives offered to prospective joiners (such as sign-on bonuses) which have the potential to reignite a much more competitive recruitment market.

 

Most associate lawyer recruitment is still about filling immediate gaps due to a departure, maternity leave, or perhaps the sudden winning of a large mandate that was not necessarily expected. Partners have not had the luxury (or just as much the need) of being able to forward-plan by bringing in specifically skilled lawyers over the last few years and so “strategic” recruitment has been completely off the radar. Now there is a little less pressure on the bottom line and deal pipelines are becoming a little more solid, firms may at least be able to look slightly beyond the short-term and into the mid-term (if not quite yet at the longer-term game plan) and consider what resources they may require over the coming months/year.

 

Given the continued weak (although slightly improved) demand for newly qualified lawyers, it is not surprising that we have seen small, if any, variation in salaries at this level. September NQ retention levels are just emerging, with initial indications that these will vary widely across the market, from as low as 50% up to perhaps 85% (although there will of course be some firms that only have a small number of qualifiers and will therefore potentially be able to retain 100%). That said, we are receiving instructions for NQs in some areas, notably corporate, finance and projects/energy related work.

 

Whilst there are some encouraging signs of activity in the legal recruitment market, we are conscious that we should not overstate the position. The UK economy remains fragile with growth forecasts at no more than 0.5% per quarter for the remainder of 2011.

 

 

Further Market Analysis

 

As further details of financial results, salary reviews and attrition and NQ retention rates emerge, we will publish a detailed market report in the autumn. In the meantime, if you would like to discuss any of these issues on a more bespoke basis, please contact one of the Edwards Gibson team.

 

Follow Edwards Gibson's market updates on Twitter

 

< Back

Articles by Robina Clough

news & events

  • July/August 2019 round up of lateral partner moves in London more
  • June 2019: Edwards Gibson director quoted in ‘US Top 50 Firms in London’ report (The Lawyer) more
  • March 2019: EG sponsors the 'Real Estate Team of the Year' Award at the Legal Business Awards 2019 more

top articles

  • Quantifying your following and writing an effective business plan more
  • The Partnership Track and Moving for Immediate Partnership more
  • Legal directory rankings and their effect on lawyer recruitment more
  • Competency Based Interviews - an overview more