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Ruth Salamon
Private Practice team
Sydney office
Market & Salary Analysis
The ‘salary war’ triggered by Allen & Overy’s unprecedented and bold announcement last year has continued unabated during the last twelve months. Sustained transactional health has continued to fuel the boom and as a result, firms are operating and posturing within a fiercely competitive, candidate-driven market. The prevailing buoyancy of corporate, finance and banking, coupled with a relatively limited pool of candidates. has led to fee earners realising their worth and correspondingly, firms realising the paramount importance of attracting lawyers externally within these disciplines whilst retaining numbers internally.
The decision late last year of the Magic Circle elite to raise newly qualified salaries to £63,500 led to a sustained period of unprecedented activity, culminating with the newly qualified rate peaking at £65,000 – up 18% on last year’s figure. This pronounced shift has been mirrored by exponential rises for lawyers with one to three years’ post qualification experience, with salaries being raised in some cases by up to 22%.
Firms outside of the Magic Circle have been forced to respond swiftly to the salary hikes in order to maintain a competitive and enticing alternative. Salaries here have peaked at £64,000 with incremental increases akin to the Magic Circle, most notably in the fiercely territorial one to three years’ post qualification experience banding.
Interestingly, there appears to be no marked differential between the salaries of transactional and non-transactional disciplines at equivalent bandings. However, the level of remuneration can be affected by a firm’s prevailing bonus regime.
In addition to basic salaries, bonus structures and associated benefits have assumed enhanced importance recently. Firms have carried out extensive due diligence in exploring and establishing bespoke formulae to raise the total remuneration for fee earners. Law firms have been conscious to differentiate between the bonus schemes on offer. Some schemes are designed to reward solely on billable hours, some are linked into firm profits, others link performance with contributions to firm life and others still are awarded on a discretionary basis. Although the method of calculation varies, it is conceivable that associates, subject to certain criteria, will be rewarded by up to 40% of base salary. Such an additional sum will serve not only to make fee earners feel valued and appreciated but also to negate, to an extent, the dual predatory threat of US firms and in-house career moves.
Although there has been an inevitable degree of negative press surrounding the introduction of the bonus scheme concept, firms are recognising that in order to retain their hard working and prized fee earners they have to embrace a culture of incentivisation or suffer the inevitable consequences.
Observers have asserted that the salary hikes in isolation are unlikely to resolve the perennial problem of poor attrition rates at the leading City firms. Instead, retention could be more dependent on creative strategies such as flexible working arrangements, maternity arrangements, increase in holiday allowance or lower rather than higher chargeable hours. Many firms are now offering their assistants the opportunity to work from home or schemes whereby holiday can be bought and sold. Some of the top firms are even helping employees achieve a genuine work/life balance by installing resident doctors, dentists and beauticians, to remove the hassle of fitting in out-of-hours appointments. This shows that firms widely recognise that they are now operating within a climate of parallel attraction and retention.
