Magic circle vs US MoneyLaw: An associate’s perspective
One City lawyer sets out some of the factors they took into consideration before making the switch 🇬🇧 ➡️ 🇺🇸
I recently made the move from a magic circle law firm to the London office of a US law firm. While there are unique factors driving any person’s decision to move laterally to a competitor firm, I have set out below some of the factors that were front of mind for me when considering whether to take the plunge and move to a US firm.
The NQ landscape
We hear a lot about what firms are doing to attract the best talent out of university. The changes in newly qualified (NQ) salaries, in particular, have been well-publicised on this platform and several others, with a number of US firms now offering a base salary to freshly-minted NQs of close to £150k a year, with the magic circle firms of Linklaters, Allen & Overy, Freshfields Bruckhaus Deringer and Clifford Chance now all offering NQ salary packages of at least £100k. Other large commercial firms have recently sought to follow suit, including Osborne Clarke, Travers Smith, Hogan Lovells and Simmons and Simmons, each raising NQ pay to all time highs.
There is an ever-present debate on this website and among associates and partners alike as to why people should (and shouldn’t) work at a high paying US law firm over, for example, a magic circle firm or large “independent” firms such as Macfarlanes or Travers Smith.
The reasons given as to why one should not give into such salary temptation and jump ship to a top-tier US law firm are varied and, for many associates, have long held sway. These include: the long(er) hours and billable targets at US firms, an “always on” expectation, more demanding and unrelenting partners, a lack of formal training processes, a heavy emphasis on fund and private equity work (rather than listed and private client work), and being an outpost of a larger American-based and focused behemoth (as opposed to working in the London headquarters of the firm). These lines are invariably trotted out in some form or another to any UK associate with itchy feet considering making a lateral move.
What is often lost in this US law firm debate is not the gap in salaries at the NQ level, which is considerable, but the salary gap further up the associate pay bands. And it is this salary gap which may turn the usual steady stream of mid-level associate defections to US firms into a roaring river. I am one of those lawyers to have recently made the leap to a US firm, and I know of many colleagues who are doing the same.
Current factors driving associates to move to US firms
So — is it just about the money? Well, sort of. The money is undeniably a major factor driving the movement of associates (and, to a lesser extent, partners too). But to point to money in isolation risks glossing over a number of specific factors which are influencing the current transfer climate.
First, hours at top tier UK and independent firms can be equal to hours at US firms if you are placed in a busy team (just ask Freshfields private equity, or A&O leverage finance, or anyone in M&A during the first half of 2021), and the demands on junior and mid-level lawyers since the pandemic started have only increased, both for those in front-end transactional work and on the litigious side too (this lawyer is aware of a number of associates at different magic circle firms who worked in excess of 2,500 billable hours in the most recent performance year). What this shows is that there is no longer a discernible safety net that applies to lawyers at large firms, regardless of whether you work for a large UK-headquartered firm or a US firm. Your hours will probably be longer at a large US firm, but that is far from certain.
Second, the recent series of “MoneyLaw” salary increases in the US have, in some cases, been applied across the Atlantic to those firms’ London offices too. The “MoneyLaw” increases for mid-level associates in particular have been chunky, with “class of 2016” associates now earning $305,000 and “class of 2015” associates now earning $330,000, following the latest increases led by Milbank and then Davis Polk. Using an exchange rate of 1GBP = 1.40USD as an example, that’s a base salary of around £218,000 and £236,000 respectively, before annual or special bonuses are even factored in.
Third, at the same time as the “MoneyLaw” increases, there has been a general stagnation of mid-level and senior associate wages at UK and independent firms. In the case of a number of large firms (including some, but not all, magic circle firms), recent announcements of NQ salary package increases were not met with commensurate increases in the pay bands for other more experienced associates, leading to a compression of the salary scale (called “salary bunching”).
For example, at one magic circle firm, there is now less than £30,000 a year difference between the gross base pay offered to associates on the cusp of being promoted to senior associate (at 4.5PQE) compared to the package offered to NQs. In addition, at the same magic circle firm, recent pay rises for NQs were instituted at the same time as all other pay bands were kept at their current levels (which were last raised in May 2019) — all with inflation currently at a three-year high, meaning the real value of wages is being eroded faster than at any time since mid-2018, so salary bands are actually going backwards.
Given how the UK tax system treats the reduction in the personal allowance for those earning over £100,000 a year, this results in associates at the 4.5PQE level (who are often tasked with running significant matters with limited partner supervision) earning a guaranteed take home pay of less than £13,000 more than a fresh-faced NQ lawyer.
Fourth and finally (and perhaps most tellingly), this year has been an incredibly difficult and isolating year for many in practice. Many of the perks of working at a large commercial law firm, including the in-person training and development, informal interactions with colleagues, lunches and dinners and nights out on the town, coffee catch-ups and the joys of real in-person meetings, negotiations, signings, court appearances and closings have all been lost or greatly diminished as a result of remote working during the Covid-19 pandemic.
In the midst of all this, law firms are reporting bumper years — early indicators in firms’ annual reporting season have seen Allen & Overy partner profits increase by an impressive 17%, while Herbert Smith Freehills partner profits have jumped by a whopping 28%. Similarly spectacular results are expected for other firms, including the other magic circle firms, with such increases likely to do more than offset any lacklustre financial results experienced during the first months of the pandemic.
Yet despite the increased profitability of UK firms, the rewards offered to associates by US and UK firms in connection with the pandemic have been vastly different. For example, during the pandemic, some US law firms were quick to spot the costs savings and revenue increases that materialised, and the accompanying risks to staff retention, and handed out sizeable “special bonuses” to their associates of up to $64,000 in 2021 depending on experience (on top of annual bonuses and previous special bonuses).
UK firms, on the other hand, have generally shown themselves to be less generous (see above in terms of the stagnant salary bands). Some firms have offered up special “Covid-19 appreciation bonuses” to staff, but those tended to be around the 5% of base salary mark, and in some cases, much lower.
As a result, associates have been left with an impression that there is a difference between US and UK firms in terms of how the spoils are shared between partners and associates during the good times (and, by implication, who may potentially bear the cost of any downturn should economic conditions deteriorate).
What happens next — do the UK firms follow, evolve or hold steady?
At this point, it’s worth noting that the above factors will likely be less influential for those associates wanting a more balanced practising lifestyle. For some, you cannot put a price on free time and the ability to travel, attend special events, see friends and family, date, exercise, eat well and relax without needing to log-on and turn a document at some ungodly hour.
But if, like me, you generally enjoy the work, have accepted the downsides of working in “big law” and are already working at a large commercial firm, then the reasons why a move to a US firm once seemed like an unnecessary risk may just feel a bit less relevant, particularly if there is no guarantee of decent work-life balance at a UK based firm, and the differential in pay is as significant as it currently stands.
For UK based firms, the choice appears clear. They could follow the US firms to some extent on pay — a number of UK based firms with a presence in the US have shown a willingness to match the “MoneyLaw” salary and bonus scales in New York and other major markets in the US, so it only seems fair to ask why such upward pressure on associate salaries hasn’t eventuated in London. Alternatively, firms could offer staff a “hybrid” option whereby they are guaranteed an improved level of work-life balance as part of their employment arrangements and are compensated appropriately should the employer ever infringe on that promise.
The other option is that UK firms could continue on their current trajectory in London, and ignore the increasing market presence of US firms and their financial lure. Of course, if that happens, then more associates than ever may just ask themselves, “why not?”, and that steady stream may soon turn into a river.
Anon City Lawyer is an associate in the London office of a US law firm.