Associates are in line for slim pay increases this year as top City firms try to avoid making the first move.
Partners with City giants including Linklaters and Clifford Chance (CC) - normally early movers - told Legal Week they are not expecting to see significant increases this year, as they feel the impact of the credit crunch.
Linklaters, Freshfields Bruckhaus Deringer and Allen & Overy (A&O) are all in the process of reviewing their salary bands, with partners conceding substantial rises are unlikely. Increases at the junior end are thought to be particularly unlikely.
The magic circle’s reluctance to make up salaries means smaller City players are also delaying making decisions.
However, top 10 City firm Lovells is pushing ahead with plans to announce its salary rates in the middle of May. One partner told Legal Week: “There do appear to be further increases coming this year. I wonder if, given the current downturn, we might be overpaying our associates.”
The delays represent a marked change on last year, when firms entered into a pay war with Linklaters, CC and A&O all boosting pay by at least 15%. The increases took the base rate for newly-qualified lawyers at leading City firms to between £63,500 and £65,000.
Slaughter and May announced salary hikes in November, bringing associate pay into line with rivals A&O and Freshfields at £65,000.
Making predictions for this year, one CC partner commented: “People should be grateful for having jobs in the current market. I could easily see the rises not happening now and being deferred until later in the year.”
A partner at Linklaters added: “I cannot believe that the pay rises will be any more than in line with inflation. They may even remain static.”
Talkback: Partner greed or prudent management? Click here to have your say.
Let's see if the partners at the top firms mentioned are taking home close to £1m/year on average. ON AVERAGE. Surely there is capacity to share some of the wealth with the people who generate most of the fees and who work incredibly hard.
A lot of counter cyclical business lines in law firms are still as busy as ever. Surely they should not be affected by a downturn in some capital markets or private equity groups?
And how is this reconciled with the other recent statements from the top international firms that they are happy despite the credit crunch, as they have geographical spread and full-service businesses which will help them ride out problems in certain capital markets sectors in the UK and USA? Were all of those statements totally untrue?
Further, hours targets and charge out rates have not changed, and may even increase again this year, so why should the percentage of fees "returned" to Associates not at least keep pace with inflation?
This all smacks of yet more greed by the multi-millionaire equity partners.
So firms are freezing pay on the back of another boom year for profits.
They're either saying (a) you get no pay increases for your hard work in the past year, or (b) pay increases are reward for anticipated work.
Option (a) is outrageous and option (b) is just lying.
I always think it is interesting when associates suggest that they are the real money-earners in the big firms or that the disparity between their earnings and those of the partners is unfair. If you are a rainmaker, then you will become a partner (and suddenly you will be less inclined to follow your previous advice). If you are not a rainmaker, then you will not become a partner and please get real about your true worth, in comparison to what you are actually paid. In real terms you are paid exceptionally well but you are free to see if you can get paid more elsewhere, so go test the market and you may be in for a shock in the current climate.
Any pay rise that is not in line with inflation (RPI puts this at 4.8%) is essentially a pay cut.
Lazy comments from a partner presumably, which don't address the fundamental issues raised above. It's just a smoke screen for exploitation
Spot the fat-faced, baggy-eyed, partner above.
Using the RPI to account for inflation and going by the lower end of the salaries for the better city firms, salaries should rise to approx.:
NQ - £66,000
1PQE - £72,000
2PQE - £82,000
These figures would be higher in the top-paying firms, those whose businesses have not been affected and who need to pay above inflation to retain talent and for those in departments who receive above band salaries.
Surely the mature response in the current climate is for law firms to raise salaries in line with inflation, rather than letting individual partners make frankly stupid comments about people being "lucky to have jobs" or salaries being frozen (which as any fool knows is tantamount to a significant pay cut in real terms). Law firms are generally still busy, and in the first half of the financial year just gone all the big firms were trumpeting about how much revenues were up. Associates need partners to bring in the work, and partners need associates to do the work - BOTH sides would do well do remember this symbiosis.
I think the idea is that junior lawyers will get basic raises on the assistant track - it's just that firms aren't changing the underlying pay bands like in 2006 and 2007. That would mean that most assistants would still see a reasonable annual increase in their salary.
People are not comparing like with like here. The story is about NEXT year's salaries. It is hardly surprising that there isn't going to be much in the way of pay rises given that law firms are likely to be much less profitable in a much quieter and tougher market. When you read about million pound average profits per partner in the next few weeks they will be about THIS year's profits. Remember that partners get paid a year behind. I very much doubt that this time next year you will be reading about lots of million pound average profits per partner.
The associate outrage expressed in some of these posts is accordingly rather misplaced and not a little naive.
I am not suggesting associates should pity partners. But if people want pay rises then there is a way to pay for it: cut staff. Associates should then be asking themselves if they are confident they would be getting a pay rise rather than the chop. How lucky do you feel?
And, believe me, the same considerations will apply at partner level!
Be careful what you wish for....
I think the condescending comment by the ex-partner doesn't help much. The underlying point made by all of the posts by associates is that associates do not deserve a pay cut i.e. anything less than an inflationa-following rise. You can try to disguise this all you like but even teachers today went on strike because they were not getting an inflation-linked rise.
When partners at fims who even in sever downturns will take home incredible amounts of money (even if the the average dropped to £500,000, this would mean many partners were still earning £1m or more), say that we should be grateful for a job, this is inflammatory and unfair; likewise when they predict below-inflation rises i.e. pay cuts. No-one is expecting - given the uncertain market - to get 15% rises again but we are expecting to get at least inflation and perhaps slightly more.
But of course associates will get pay rises as they will go up a year of PQE. There aren't many jobs around where your pay goes up automatically every year but quite a big sum. Does your secretary's pay work like that? Nope. So actually what you are looking for is a bigger pay rise than the one you will get anyway (which I wager will be above inflation). That isnt a great argument! I am not trying to be condescending. I am out of this game now, I am just trying to throw a little light on the realities. If the only problem you suffer in this downturn is that your pay goes up by slightly less than you would want it to have but still goes up by quite a bit in any event then you will have done well indeed. There are going to be lots of City workers who suffer quite a bit more than that.
Partners get paid a year in arrears?
As if
Firms pay what they think they have to in order to stop too many people leaving, and to attract enough new candidates.
All this guff about what's fair is just that.
'Me' clearly has no idea how partnerships work. Of course partners get paid in arrear. You share profits as a partner, you don't get paid a salary. As profits are calculated on an annual basis QED you get paid in arrear. As a general comment I'd agree with the poster above: salaries are dictated by the market and the market just tanked. If you think you are undervalued you can of course look elsewhere but you will be in for a rude awakening. And don't believe the hype about countercyclical practices, the Middle East etc. That stuff might keep firms' heads above water but there is no propsect of that offsetting in any major way the loss of the biggest transactional boom in history. Big pay rises (and huge partner profits) were a bubble phenomenon and the bubble has burst. We all need to get used to that.
Used to be a partner - many firms have done away with PQE lockstep, particularly at the more senior end. Thus an increase in PQE does not automatically correspond to a pay rise. Ergo, your argument is flawed. As to the guff about partners being paid in arrears, whilst this is true it can't be used to justify cutting salaries after associates have worked their backsides off in the year just gone.
If partners are paid in arrears, are we to ignore drawings thoughout the year?
Only Clinton would try arguing that: "It depends what the meaning of 'paid' is."
Someone didn't tell Shearmans.
Associates' salaries are a cost to the business which, like paper, computers etc. generally cost more the next year than they did the previous year; as do lawyers (i.e. hourly rates go up year on year); this is inflation. The only realistic explanation for assistants' salaries not going up by at least the rate of inflation (i.e to avoid a pay cut) is that to do so would mean partners' earnings going up by less (or going down by more) than they would otherwise. There are two reasons why this is unfair:
1. Partners own and control the business. Accepting bumper profits when times are good should therefore be balanced by accepting lower profits or losses when times are not. To do otherise passes some of the risk (when things are bad)to assistants. Save in firms where bonuses are related to firm performance and not individual performance (a rarity), profits are not shared in the same way when times are good.
2. Assistants do not do the same job year after year (compare secretaries as suggested above). A 5PQE assistant will have more responsibility, both for chargeable and non-chargeable matters, than a 4PQE assistant. Therefore the salary comparison must be between a 'x' pqe assistant last year and an 'x' pqe assistant next year. Saying that, for example, a 4PQE assistant is getting a pay rise by being paid the same next year as a 5PQE assitant was paid last year is economically illiterate.
What is “economically illiterate” is that associates love the market when it results in the increase in their pay well above inflation and hate the market when it does not. Tell me, when you got your above inflation increases in recent years, did you rush off to Legal Week to post comments on how that did not make sense? Did you refuse to accept them? Just get real. Your firms are entering into a period of considerable uncertainty and they have no obligation to insulate you from the possible consequences. As stated above, if you do not like the position you find yourselves in then try to go elsewhere (or possibly you are schizophrenic about that particular market also). If you don’t get the foregoing, then I am afraid you rather self-select in the event of a significant downturn.
It is hilarious how partners say associates are overpaid and fail to consider their own very inflated income...
Yet the very next week Legal Week is crowing at the enormous incresases in PEP figures as a result of the 2007 M&A boom. It is a cheap shot for City Firms to give low pay rises and bonuses after what has been the biggest boom of the decade. Associates should make the firms pay up. The partners certainly are not taking a pay cut.
Only one person here has picked up on the fact that the majority of lawyers will always see an annual increase in their salary as they progress through the different levels of PQE. Despite comments to the contrary, the vast majority of firms still use this method of salary structure. When combined with the inflationary market of recent years (created by a shortage of suitably qualified lawyers)this salary structure has produced year-on-year increases well in excess of inflation. So not only is any talk of pay cuts nonsense, even if it were true it would need to be balanced against many, many years of above inflation increases. I'm not sure which is more depressing - the inability of lawyers to understand how their salaries are measured, or the fact that each year journalist misreport this "story".
The piece makes it fairly clear that the reviews it is referring to concern the underlying pay bands, not whether assistants move up through the traditional track. Perhaps it should have been made more explicit but I don't think we've "mis-reported" the model this or any year.
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