Every time there is a salary war in the London legal market I think it has to be the last time for a long long time. I have always been proved wrong!
When I qualified as a lawyer back in 2005 I was treated to a big jump in salary from my second year trainee salary of £32k. £50,000 was a huge amount of money, but I felt like it had been earned with the time and effort I had put in during the training contract (and prior study). Since then, salaries have now shot up to the point where an NQ at some firms in London can earn over £160,000, with a significant bonus on top of that – not only that but there have been two significant jumps in salaries in the last 12 months. Final seat trainee salaries can also be at the £50-60k level now, meaning a jump of around £100,000 on qualification.
A lot of this is down to Covid which had the following domino effect:
- Hiring freezes at the start of lockdown – coming not too long after the Brexit referendum which resulted in the M&A market coming to a screeching halt, firms were understandably ultra-cautious about hiring when the world started locking citizens down.
- Whilst the lockdowns undoubtedly caused many businesses to suffer, the larger businesses (and therefore more likely to be the clients of the larger international City law firms) actually came out of the situation better off. This resulted in no decrease in transactional work in the firms that were habitually busy, and often an actual upturn in work. Private Equity was particularly busy as a result of there being an ample supply of acquisition targets.
- People got used to working from home – this has been a bit of a double-edged sword… more freedom to manage your day (and do your drafting in your pyjamas if you want), but the very real potential for work to creep more into your personal time.
- Lawyers were being worked even harder than before – with increased deal flow and the preceding hiring freeze, the incumbent lawyers were having to work harder to get everything done. Hiring always has around a 3-6 month lag, so it was difficult to make up ground.
- Overworked lawyers looked at their options – go in-house for a perceived better work/life balance, leave the law, go abroad or go to another firm and get paid more for the same effort/have better prospects, or try to search for the legendary firm that has work/life balance.
- A game of musical chairs then started whereby lawyers would, by and large, trade up to a firm paying more… there was then competition between the US firms in London to attract the best talent and, as is often the case, money talked. This led to a series of pay hikes which has recently culminated in the heady heights of over £160k base.
- Work/life balance has significantly deteriorated at a lot of firms – I have spoken to a lot of associates who are grateful for the money they are earning and love the quality of the work on offer, but who cannot deal with the volume of work and expectations. Holidays have been cancelled, weekends worked regularly etc.
£160,000 is an incredible amount of money to justify one’s worth against. There is no magic switch that gets flicked inside once a trainee qualifies as a lawyer that makes them incredibly more able and efficient at their job, yet the pressure of trying to justify earning that salary may make some people compromise their mental, physical and emotional wellbeing.
So, back to my original point. NQs don’t need £160,000 salaries. What I feel they really need is a good starting salary that reflects the extortionate costs of living in London (if that’s even still necessary with remote working) but without going to the extreme that they’re currently at and, more importantly, a sustainable work/life balance that ensures that they get good work and enough rest to allow them to process their learning and not make mistakes out of tiredness.
Law firms may have backed themselves into a corner now though – firms can’t drop salaries without issues, but they can’t continue to maintain the levels of profitability if they either keep paying their associates the same but hire more people to allow everyone to work fewer hours or if they turn down work to keep utilisation levels in a healthy range.
The partnership model for law firms does little it incentivise future growth and sustainability – once the current partners retire or have to leave, they no longer have a financial interest in the firm, therefore there is a disincentive to reduce current profitability for future benefit.
As long as there are still lawyers of sufficient quality available and willing to fill the high-pressure positions, we will probably see this model continue, but at some point there may be a sea change whereby the underlying issues that resulted in the dramatically-inflated salaries need to be addressed.