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City law firm associates and partners set to coin it in looming salary war

Survey of top 100 practices shows major threat to profits in battle for top talent against backdrop of continuing client pressure on fees

A salary war for top talent is about to break out among City legal practices, law firm finance directors are predicting.

A survey released today shows that a third of top law firm money men rated staff poaching as a significant threat to profitability as Britain’s economic recovery continues.

Thomson Reuters research of finance director concerns at the UK’s top 100 law firms demonstrated how quickly the fears of poaching and salary inflation have arisen; last year, only 4% of those surveyed rated the issue as a threat.

“The spectre of star lawyers or whole teams defecting to rivals — and a substantial portion of their client base going with them — is starting to stalk City firms once again,” said Samantha Steer, head of the “large law segment” at Thomson Reuters UK Legal.

She continued:

“Team defections can also tend to lead to faster pay inflation for lawyers across the firms concerned. This has not really been an issue for most big law firms at all in recent years but now it’s a prospect, which is clearly rattling many Top 100 finance directors

“If key staff who have just sat tight and ridden out the rounds of redundancies and pay freezes as firms cut costs now decide the time is right to move on, taking their teams and their clients with them, it could seriously damage firms’ profits and reputation.”

The researchers pointed out that in a bid to retain key staff, law firms could be forced to launch promotion drives and boost remuneration packages at a time when corporate clients continue to apply the thumbscrews on fees.

Indeed, downwards pressure on rates was seen as far and away the biggest threat to law firm profits, with nearly 90% of survey respondents flagging it up. That figure was up from 76% of finance directors citing fee pressure last year and just 58% in 2012.

“Firms are still seeing clients looking for ways to rein in their legal spending,” commented Steer, “and are expecting them to continue to negotiate hard on fee levels and even to look at doing more of their legal work internally.”

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