Edwards Gibson Director quoted in Bloomberg Law article ‘’UK Law Firms’ Salary War Risks Their Ability to Expand, Compete’’ by Meghan Tribe and Mahira Dayal

May 2024

The Bloomberg Lawarticle ‘’UK Law Firms’ Salary War Risks Their Ability to Expand, Compete’’ written by Meghan Tribe and Mahira Dayal reported on how the major UK law firms, including Linklaters and Freshfields Bruckhaus Deringer, have increased salaries for NQ lawyers to £150,000 to remain competitive with US firms. The article features several quotes from our Director, Scott Gibson. Most importantly, it highlights his analysis of the real reason behind Freshfields' surprise compensation hike in a tepid market: the firm is 'trying to break away from being a Magic Circle law firm and is striving to become a global elite firm.' The article then goes on to report that these salary hikes are partly driven by the need to match the US firms, which pay significantly higher rates. The raises could strain UK firms' expansion plans and partner profits. US firms' higher fees and larger markets allow them to sustain higher salaries more easily. The pay increases highlight the intense competition and pressure on UK firms to retain talent and maintain prestige.

Financial Times article titled “Why US law firms outgun City rivals in battle over pay” by Vanessa Holder explores how newly qualified (NQ) lawyers are experiencing significant pay envy as US law firm Quinn Emanuel increased its London NQ rates to £180,000. This has spurred UK firms like Linklaters and Freshfields Bruckhaus Deringer to raise their own NQ pay to £150,000 to remain competitive. US firms generally offer higher pay due to a more lucrative home market and higher fees, with top spots in UK revenue rankings. Despite a quiet market for young lawyers and stalled profits at UK firms, raising NQ rates is a strategic move. Director Scott Gibson explains that ‘’the NQ rate is totemic’’; it serves as a quality indicator for firms, essential for those aiming to be seen as global players. However, high NQ rates can cause internal tensions and reduce partner profits, making it risky as US firms continue to poach partners.

Law.com Habiba Cullen-Jafar published an article called ‘’Are We on the Cusp of a New NQ Pay War?’’. Cullen-Jafar leads the article with the assertion that when Freshfields Bruckhaus Deringer raised its NQ lawyer salaries to £150,000, it triggered a ripple effect among rival firms. Quinn Emanuel responded by increasing its NQ rates to £180,000, the highest in London. Following suit, Linklaters matched Freshfields' rate, highlighting a shift towards higher pay among UK firms traditionally outpaced by US counterparts. Director Scott Gibson said ‘’Traditionally the differential in base pay between the ‘magic circle’ and U.S. firms paying full ‘New York rates’ has been around 40%, but Freshfields has made it impossible to keep the differential at the level’ and that ‘the top-paying American law firms simply can’t pay 40% more than Freshfields because, if they did, they’d be paying associates more in London than in New York; that would make no economic sense, and I can’t see it being agreed by management.” The Director then concludes that amidst a slow market, this signals the firm’s ambition to compete with elite global firms rather than just UK peers. Gibson suggests that This escalation, driven by prestige rather than economic need, pressures other firms to consider similar raises, despite potential financial strain and the risk of escalating salary wars.

 

Read the full Financial Times (paywall) article here.

Read the full Bloomberg Law article here.

Read the full Law.com (paywall) article here.

Read the full Ewards Gibson article here.