Bullish Linklaters leads on pay but will others follow?

It certainly wasn’t a forgone conclusion but Linklaters set the agenda for the City pay round today (30 April) when it confirmed that it was lifting its salary bands for assistants for the financial year to come. The rise, which varies from nearly 4% for trainees and newly-qualifieds to around 2% for first, second and third year-qualified lawyers, is obviously a far cry from the double-digit percentage awards dished out by leading law firms in 2006 and 2007.

But it was by no means certain there would be any increase in the bands at all this year given the drop in work levels and the gloomier global outlook (indeed, Linklaters partners weren’t even sure there would be a rise last week). The reasoning went that assistants would largely earn above-inflation annual rises under the assistant track and so it made sense to keep the bands unchanged.

That was the logic Herbert Smith employed when it announced today, just after Linklaters, that it was maintaining its 2007-08 rates as a prudent measure, even if the timing is unfortunate for the firm. And, of course, City pay bands did remain largely unchanged from the £50,000 starting region they hit after sharp rises in 2000 and 2001 for no less than five years. In this context, Linklaters’ pre-emptive move looks bullish even if the firm’s junior lawyers were paid a touch less than equivalents at Allen & Overy and Freshfields Bruckhaus Deringer.

But for all the grumbling of partners regarding unsustainable pay rises, the recent hikes were a little less expensive than the dot.com splurge, which in two years raised the cost of junior lawyers by around 50%. In comparison, last year’s boom culminated in salaries rising less than 30% over a two-year period.

The continuing pressure from US law firms attempting to get traction in the City is also maintaining some upward pressure in the labour market, as it’s hard to see that coming from client demand.

Adding to that pressure this week was Shearman & Sterling, which hiked its City pay bands by 7% across the board. However, it’s still hard to see major rises from most American firms. As a so-called mid-Atlantic firm, Shearman had fallen behind some comparable rivals like Weil Gotshal & Manges. But other leading US firms will generally be constrained by what they pay on Wall Street, though it’s possible that firms like White & Case could come under pressure to pay Manhattan-level salaries in the Square Mile.

But returning to Linklaters, its move on pay appears to be another suggestion that the firm under Simon Davies is intent on focusing just that little bit higher up the food chain. Linklaters is already currently moving to bring its German partnership in line with its London equity, which will necessitate a more rigorous focus on the top-end of the German market. And the firm is currently reviewing the future of its Central & Eastern European network in a move that could see four offices spun off on profit grounds.

As the firm’s celebrated managing partner Tony Angel completes his last day at the firm today, Silk Street, it would seem, has no intention of resting on its outgoing chief’s laurels.

alex.novarese@legalweek.com