Elite UK Firms Are Losing London Salary Battle to US Invaders

Top UK law firms are keenly aware of the disparity in pay hampering their efforts to compete with Wall Street rivals for top talent and are putting measures into place to lessen it.

None of the five prestigious law operations based in London, known as Magic Circle firms, matches the so-called Cravath scale that elite US law firms adhere to for compensating associates. Pay at the UK firms is 35% to 40% below the Cravath scale for junior lawyers, said Ria Karnik, a London-based legal recruiter for Major, Lindsey & Africa.

UK firms have struggled to match US firms’ profits in part due to a swarm of new competition and Post-Brexit currency changes, said Scott Gibson, director of London-based legal consultancy Edwards Gibson. “No longer do the UK firms—the Magic Circle—dominate the market as they did,” he said.

The pay difference adds to the struggles the five London firms face from competition with US firms on their home turf. That’s a harsh reality for Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters, and Slaughter and May, who formed the indisputable pinnacle of the London legal market as recently as a decade ago.

Starting in 2015, US firms made a concerted push into the UK market in pursuit of big private equity work. “It was a whole different swathe of money coming in at a completely different level,” said Adil Lalani, London-based managing director at legal recruiter Macrae. “That’s how a lot of the US firms were able to build their practices in the UK and maintain healthy rates.”

The US push included aggressive hiring, which continues. Kirkland & Ellis brought in 18 partners in the UK last year, the most of a US firm in London, according to a report by Edwards Gibson. Paul, Weiss, Rifkind, Wharton & Garrison, which has made expansion in London a top priority, ranked second with 14 lateral hires, according to Edwards Gibson.

The Paul Weiss hires included Kirkland’s private-equity superstars Neel Sachdev and Roger Johnson, as well as two partners from Linklaters and two from Clifford Chance. Sachdev and Johnson reportedly received $20 million pay days in the move.

Over the last 12 months, roughly 370 associates have left Magic Circle firms, according to Leopard Solutions, and some top US firms have been among the beneficiaries.

“It’s easier to pick off the best trainees qualifying in your Magic Circle competitors, rather than invest all the money and time to have your own trainees,” said Chris Clark, director of London-based Definitum Search.

A&O Shearman, the product of a trans-Atlantic merger between Allen & Overy and New York-founded Shearman & Sterling, due to be completed in May, will exacerbate the pressure on UK firms, Clark said. “A&O Shearman will adjust London salaries and the rest of the Magic Circle will have to fall in line,” he said.

Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters, and Slaughter and May didn’t respond to requests for comment for this article.

Fighting Back

UK firms have been raising associate salaries since 2020 as they juggled record levels of work and needed to attract and retain associates to do it.

Newly qualified associate salaries in London have increased by 25% to 30% since that summer of 2020, alongside new bonus schemes that incentivize high performance, Karnik said. But as Magic Circle firms increased salaries, so did their US rivals, maintaining the pay gap—though UK firms are trying to address it.

“Magic Circle firms are hugely aware of this pay disparity and have attempted to bridge the gap by offering the opportunity to earn 100% of base salary as a bonus, if associates hit a particularly high hours threshold,” Karnik said.

The hours threshold puts the UK-based associates on par with the hours expectations of Big Law US firms in London, Karnik said. That is something London lawyers traditionally worked to avoid.

Hours expectations at a UK firm are different than they are at a US firm, Clark said. “It’s not really acceptable to work every weekend for six months or in excess of 2,000 hours per annum.”

In order to help retain talent that might jump to competitors, associates at UK firms are also seeing a faster track through the promotion route where historically they’ve been held back, Clark said. High-performing, mid-level associates who resign to join a US competitor might have their salary matched quietly by their Magic Circle firm, or the associate might get a sizeable retention bonus, he said.

Cravath Scale

The newest Cravath scale that top US law firms adopt for associates in London is $225,000 for first-year associates, with seventh-year associates taking in $420,000. There is some variation as each firm calculates exchange rates differently, Karnik said.

Three US firms last week announced salary increases for their UK associates. Sidley Austin said newly qualified lawyers would get a 4.4% bump to about $212,000 (£166,500), Ropes & Gray gave its London first-year associates a 12% increases to $210,000 (£165,000) and Paul Hastings said it would boost pay for newly qualified lawyers 5.5% to about $220,000 (£173,000).

While US firms typically subscribe to leaner team formation on deals in London, there’s a consistent need for transactional associates at the junior level, Karnik said. Over the past two years, that’s extended to include midlevel to senior candidates, he said.

But the mergers and acquisitions, initial public offering and private-equity boom, which provided plenty of work and drove associate salary hikes in 2020 and 2021, has yet to rebound in 2024.

“There’s going to be more of an issue of whether there’s enough work around to justify these crazy salaries,” Gibson said. “Salary wars always end badly for associates.”