Analysis

It’s beginning to look a lot like Slaughter and May is calling a recession

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Modest pay rise and work/life perks signal tough times ahead

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Gossip was circulating last week on our magic circle open thread about Slaughter and May announcing a mega pay rise to take its newly qualified solicitor (NQ) remuneration up to £100,000.

Such a boost, the chatter suggested, was necessary to ward off the threat of US rivals paying dollar-tied London NQ rates that — thanks to a weak pound — currently equate to around £142,000. This incredible MoneyLaw movement has generated salary inflation across the high-end City law market, with Freshfields and Clifford Chance raising pay in response to £85,000 and Herbert Smith Freehills taking its NQ rate to £82,000. These are unprecedented sums for English headquartered law firms. And City law rookies have been hoping it was just the beginning.

But alas, the rumoured Slaughters £100k game-changer ain’t happening. On Wednesday the firm announced that it was finally upping NQ rates … by an underwhelming £6,500 to £78,000 plus bonuses. The figure is as low as Slaughters could have credibly gone, being just £500 more than the lowest magic circle payer, Linklaters, which is due a pay review in three months.

Instead of hiking rewards, Slaughters has put in place a host of much cheaper to implement work/life balance measures. Three year post qualified associates will get a paid sabbatical, all associates can now apply to work from home one day a week, and holiday allowance is up to 30 days.

This is very nice, but make no mistake, whatever polite reassurances of delight that Slaughters’ youth give to partners about the firm’s new perks will conceal a growing irritation. The status-obsessed Alpha males and females who join S&M don’t relish being in a lower pay league than their old mates from law school. Amid some recent disappointing scores in the Legal Cheek Trainee and Junior Lawyer Survey — which saw the partners take a real battering — no wonder some are suggesting that the firm has lost its way.

Those keen to write-off Slaughters should be careful, though. Bear in mind that the firm has a history of having the last laugh. From never merging, to declining to open up mass networks of international offices, to shunning lateral partner hires, to ignoring Twitter — Slaughters’ past is littered with decisions that are widely mocked at the time. Yet, year after year, this contrarian firm is the most profitable in the magic circle.

That financial strength is important. Because if Slaughters wanted to, it could compete on junior lawyer pay and win against any English firm. By declining to engage, Slaughters’ partners may be acting prudently rather than greedily. How sustainable is it for London headquartered firms to follow the US-based MoneyLaw crowd on pay at a time when the dollar is set to strengthen and the pound remain weak? And how resilient will the model that many big UK firms are developing — which is seeing them cut trainee numbers in favour of paralegals at new lost support centres in the regions to help support London pay — prove to be in the long term?

The risk associated with these new dispersed and very unequal teams is that they may struggle to maintain good morale over the longer term. US firms’ tightly-knit London bands of lavishly paid hotshots could ultimately prove a more sustainable set-up. And Slaughter and May, which is notably absent from Belfast, Manchester or anywhere else outside the M25, seems to be closer to the latter category in spirit — albeit with a hyper elite brand in place of MoneyLaw pay.

That brand is going to have to work hard. If the economy keeps muddling on and Slaughters continues to be eclipsed on remuneration it will soon stop attracting the best grads and lose status. It’s probably got three years at best. On the other hand, if 2017 is the start of another downturn, City law pay falls and job cuts will surely follow at the firms which find themselves overstretched. Slaughters won’t be one of them. And the firm’s moaning millennials may find themselves rather grateful.