Market Focus

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As the largest law firms vie for the new wave of junior solicitors, the battle for talent is becoming more intense than ever before, but what is the trajectory for this ever-escalating bidding war? Where did it begin, and what does it mean for the best of the newly qualified talent now?

After experiencing a difficult period of economic uncertainty that encompassed the Brexit vote and the first 12 months of Covid, the legal sector has bounced back spectacularly, and the market for junior lawyers is currently white hot. If you didn’t see it on the BBC website last week, you may be interested in this article which explores the battle for talent and touches on the plight of NQs earning £150,000 per annum.

Anybody who has spent time with a large international law firm will know that while they invest heavily in the recruitment and retention of talent through non-salary elements—generous benefits packages, L&D opportunities, onsite doctors and dentists—the easiest way to attract the ‘brightest and best’ is to simply whack another £10k on their salaries. After all, nothing talks louder than cash!

But what drives this need to increase salaries by such margins? While we’re no experts when it comes to economics, we’re aware of the basic concept of supply and demand—and there’s certainly no shortage of supply when it comes to junior lawyers.

Looking Back: A Story of Salaries

To understand where we are now we need to look at what’s gone before, so let’s turn our minds back to 1987 and the merger of Coward Chance and Clifford Turner to form—you’ve guessed it—Clifford Chance.

This was a merger that sent shockwaves through the legal world, and many would argue that it fired the starting pistol in the race for global domination—in respect of the provision of legal services anyway.

Fast forward a decade to 1997, and NQs within the magic circle were pocketing an average of £30,000 per annum (which equates to c. £58,000 today). The highest NQ salary in London (£45,000) was being paid by one of New York’s finest, White and Case.

In 2010, Boston headquartered and financial restructuring heavyweight, Bingham McCutchen, became the first firm to break through the £100k barrier, but they were far from the only firm to play along. 2010 was an exceptional year for salary growth, with magic circle qualifiers getting a c. 20% rise.

Bingham didn’t stop there either; they doubled their NQ salary in just four years, and four years later the firm tore itself apart and 300 partners disappeared to Morgan Lewis.

The current flare up in the battle for talent started just prior to the pandemic, when several leading firms announced double digit increases in their NQ salaries, only to perform an about-turn shortly after we were all sent home. However, once everybody realised that work could continue and 2020 was firmly in the rear-view mirror, it was open season again.

Several of the UK’s largest law firms(not just the magic circle) are now paying their NQs in excess of £100k, while the salaries on offer at numerous US law firms (including Kirkland & Ellis, Skadden and Latham & Watkins) are an eye-watering £150k+.

We think that Vinson & Elkins currently tops the list at £153,300 per annum, but somebody’s probably gone one step further during the 48 hours it’s taken us to publish this blog!

So, if there’s no shortage in the supply of junior lawyers, why is the battle for talent currently so intense?

Pent-up Demand

While there’s no shortage in the supply of junior lawyers, there’s certainly been a significant increase in the demand for their services.

Whatever your views on the current government, it’s hard to argue against the fact that the 80-seat majority won by Boris Johnson in 2019 released a pressure valve which had suffocated the economy and the legal market since the referendum of June2016. However, almost as soon as the valve was released, we were hit with the pandemic, and the legal sector returned to a state of cryostasis once again.

Within a year of the first lockdown, businesses had learned to adapt and—frustrated by four or more lost years—boy are they ready to do some deals!

Replacing Mid to Senior Level Associates

As the BBC article references, recent reports have indicated an increase in the number of experienced practitioners quitting the legal sector.

Whether this is because the pandemic has caused experienced lawyers to simply take stock, or surging demand creating a heightened level of pressure for mid to senior level associates, one thing is for sure: finding like-for-like replacements in the current climate is extremely tough.

This is forcing law firms to replace experienced associates with more junior lawyers to plug the gaps.

Chasing the ‘Brightest and Best’

While we’re currently experiencing exceptionally high levels of wage growth, the battle for talent will always endure because of the way that the sector identifies ‘talent’.

It matters not how academically strong the median law student is, or how well the legal education system prepares graduates for a career in law; top tier law firms will always do what they can to attract the ‘brightest and best’.

As you can see from the historical bigger picture of legal pay, the wheels never stop. Salary increases are inevitable. It doesn’t matter how many first-class trainees qualify each year, there’ll always be a top 2-3% that elite firms will skim off the top.

It appears that the battle for talent has no end, and as salaries continue to climb, we might remember Bingham McCutchen for their pioneering spirit. For the giants that stand on their shoulders offering more than ever, it seems that they are too big to fail.

One thing is for certain, in this waging dogfight to recruit the best of the legal sector, the real victors are the newly qualified solicitors pocketing the payslip.

The Social Mobility Foundation has recently published its Employer Index Report for 2020, which ranks UK employers on the actions they are taking to access and progress talent from all backgrounds.

Now in its fourth year, the Index is seen as the leading authority on employer best practice within the field of social mobility, and the Foundation commends the 75 organisations that secured places on the Index for ‘showing what’s possible with regard to increasing social mobility’.

Encouragingly, law firms accounted for more than one third of the organisations on the Index, with Bryan Cave Leighton Paisner (4^th overall) securing the highest rank within the sector.

Other law firms placed in the top 10 overall include Browne Jacobson (5^th), Herbert Smith Freehills (7^th) and Baker McKenzie (10^th).

Naturally, our eyes were drawn to the ‘Recruitment and Selection’ pages of the report, which assessed an organisation’s performance within two main categories:

• removing barriers that prevent individuals from lower socio-economic backgrounds progressing to selection, and

• rewarding current ability and future potential over past academic performance.

In other words, the Index recognises organisations that are moving away from recruitment practices that reward ‘polish over potential’.

‘Blind’ recruitment practices can certainly help in this regard and, as the report makes clear, those employers who provided data to the Foundation have made huge strides over the past few years. For example:

• 46% of employers do not request the names of applicants, which is up from 18% in 2017.

• 37% do not ask for grades, up from 13% in 2017.

• 46% do not ask for the name of the university an applicant attended, up from 18% in 2017.

These figures suggest that a significant shift in recruitment practices is taking place nationwide, and at NQS we know that we can play an important part in this process too.

While we can be proud that the legal sector dominates the Index, we can’t help but think that more could be done with regard to geographical bias within recruitment practices.

What do we mean by ‘geographical bias’? Essentially, it’s the snobbery that exists regarding experience gained in London as opposed to, basically, anywhere else.

Although we don’t have any hard data to prove that this geographical bias affects social mobility, it doesn’t take a huge leap of faith to see a link. After all, it’s difficult to achieve social mobility if you don’t have… mobility.

While it would be wrong not to recognise the differences in the work undertaken by ‘Regional’ as opposed to ‘City’ firms – where the transactions and disputes advised upon are often of higher value and complexity – all too often we see applications from candidates with huge amounts of potential being dismissed out of hand simply because of their ‘Regional’ experience.

Having worked in legal recruitment for nearly 17 years, I realised long ago that most lawyers haven’t got a clue about how their colleagues within different departments go about their work. If they don’t know what the lawyer down the corridor does on a day-to-day basis, why do they make so many assumptions about the workload of a lawyer based 200+ miles away?

If we are to continue to move away from recruitment practices that reward ‘polish over potential’, isn’t it time that we investigate a junior candidate’s experience a little deeper before excluding them from the process?

With the salaries being offered to junior lawyers increasing at break-neck speed, we thought it was time to offer a snapshot of how things are evolving on a national level.

Our recent analysis on ‘The Battle for Talent’ highlighted the scarcely believable rate of wage growth at the very top end of the market, and considered what was fuelling such growth, but it’s important to understand how these same factors are affecting every corner of the legal sector.

Top of the Market

It may be that the last you heard in news of record-setting NQ salaries, is that Milbank had upped its London NQ solicitor pay to $215k (just under £160,000), which the firm announced in late January. However, with the ink barely dry on Milbank’s press-release, Boston-headquartered Goodwin Procter announced that they were bumping their NQ salary by 10% from £147,000 to £161,500.

Plenty more US firms have since joined the fray, with several offering double digit salary hikes into the £140k+ bracket.

Where does this leave the Magic Circle?

All bar one of the magic circle firms currently pay their NQs a salary of £107,500, ­with Freshfields lagging behind on £100k.

When considering the enormous salaries on offer at US firms, it may seem that these heavyweights are being somewhat unresponsive, but that would be ignoring the fact that Slaughter and May, for example, increased their NQ salary three times in 2021; having started the year by reinstating an NQ salary of £90,500, the firm bumped it up to £100k in July, before doubling down in December to the current figure. That’s an almost a 20% increase in annual salary in an eleven-month period!

Will the magic circle need to look again at their NQ salaries in order to counter the advances made by their US rivals?

In addition, they may also need to consider the narrowed salary gap between them and other top tier City firms. Silver circle outfits like Macfarlanes, currently match Freshfields with £100k salaries, while Herbert Smith Freehills is edging even closer to the magic circle at £105k.

These figures might lead junior lawyers to question: if not for prestige, why would I work for a magic circle firm when I can take home as much—if not more—while achieving a better work/life balance in the silver circle?

With further rises expected at the top end of the market, Sir Nigel Knowles has expressed concern for a bubble-burst moment with salary inflation, but the fact of the matter is that not many individuals are actually receiving this salary. As much as headlines like to amp it up, it’s unlikely for your average lawyer to see anything as drastic as his.

Regional Firms:

While the salary war that’s currently being waged by elite US law firms affects only a tiny proportion of junior lawyers, it would be wrong to assume that these increases and, importantly, the trade winds behind these increases do not affect NQs right across the country. Indeed, the notion that the London legal market is its own insulated bubble detached from the sector has been dispelled by recent regional advances.

DLA Piper’s recently announced increases have been felt much more in the regions rather than the City. What was an 8% rise (to £95k) in salary for their London-based NQs, was a gigantic 35% increase for NQs working out of the firm’s Sheffield, Liverpool, and Birmingham offices (£48k to a very attractive £65k).

Late last year, Addleshaw Goddard announced that it was increasing regional NQ pay by 11% across the board, which trumped the 9% pay rise offered to its London-based NQs.

On the flipside, however, is Clyde & Co which announced a whopping 14% pay rise for its London-based NQs without hinting at any increases in the offing for those working at the firm’s eight regional offices.

The Market as a Whole:

The important thing to remember is that the trickle-down of salary escalation is inescapable for all firms. First, when it comes to attracting new recruits, there is the increased competition of large law firms fishing in new waters, which increases competition for medium-sized firms and so on.

Secondly, the Covid pandemic has removed a degree of comfort that regional firms felt from a geographical perspective. With the massive uptake of working from home, the competitive insularity that regional firms had with a lack of local rivals—due to their geographical location—is gone, as people can work for almost anyone anywhere.

The pressures of competition are already being felt at the time of writing. We spoke to a recruitment manager at a medium-sized firm in the South-East who explained that the rise in salary from bigger names in the area was killing their recruitment prospects, as on several occasions, a few weeks after they thought they’d netted a new recruit, the candidate would renege on the offer and join a larger regional firm.

Finally, even if a law firm remains unaffected by either the encroachment of larger firms or the removal of geographical barriers, they will struggle to escape the upward salary pressure exerted by an inflation rate of 6%+.

In summary, no law firm can be entirely immune to the battle for talent’s trifecta. Whether it is the salary trickle down, apex firms encroaching into regional spaces, or the heights of salary dogfighting in London, the effects of inflation are unavoidable. Even firms that have held a safe spot for the longest time are facing pressure due to Covid’s restructuring of work culture, and are now facing down increased levels of competition, in an escalation which seems inescapable.

Overall—at least for NQs and junior lawyers—things are looking good in the salary game right now. However, while the economic rises are enticing, there is something to be found in Sir Nigel Knowles’ concern, as while there is no sign of salary growth slowing down, we might question how long can we expect this all to go on for?

As the results continue to roll in, some of this year’s spring retention rates may surprise you as much as they did us. They have by no means spoiled the picture painted by early announcements, but we are witnessing a wider spread in results than anticipated; splaying a diverse canvas of this season’s retention results.

Clifford Chance was the last of the Magic Circle to announce its spring retention rate, and it came in considerably lower than expected, with Legal Cheek reporting a retention score of 70% (32 out of 46). This is a marked drop from the firm’s 88% retention rate reported last spring and puts the global powerhouse firmly at the foot of the Magic Circle, which averages 86% as a whole this spring and a massive 90% when Clifford Chance’s score is stripped out.

There’s much better news however for CMS, which has retained 24 out of its 25 qualifying trainees, giving the City firm a 96% spring retention rate. It has been revealed that more than half the final-seat trainees will be qualifying into the Energy, Infrastructure & Project Finance, Technology & Media and Corporate teams. CMS has maintained its 90%+ retention rate from last year, continuing on with what is a very impressive score.

Firmly in the middle of the pack, Herbert Smith Freehills confirmed that it will be retaining 24 of its 29 final seat trainees for a score of 83%, which is slightly below our updated average retention score of 85.5%. With recent salary changes, NQs staying on with the litigation heavyweight will be earning a base salary of £105,000 per annum, a full £5k more than their counterparts at Freshfields.

Another solid if unspectacular performer this spring is New York outfit White & Case, which is retaining 19 out of its 23 qualifying trainees (83%). These NQs (who’ll be earning a whopping £140,000 per annum) will be qualifying into abroad range of the firm’s global practice groups including Capital Markets, Commercial Litigation and Debt Finance, with two heading to the firms’ offices in Dubai and Paris. A retention rate of 83% is par for the course for White & Case, which has averaged 82% over the past five years.

Finally, news of a second 100%retention rate this spring as Silver Circle outfit Macfarlanes announced that it’s retained all six trainees due to qualify in March. The firm did not disclose what departments the talent would be moving into but Jat Bains, the firm’s Graduate Recruitment Partner, stated the firm’s pride in its ability to continually retain such a high percentage of its trainees.

The Big Picture:

As alluded to earlier, the overall retention score for spring ’22 has dropped from 88.3% to 85.5%, with the 70% retention rate reported by Clifford Chance being the guilty party.

Even though all the Magic Circle results are in, we are still very much in the midst of retention season, and we’ll be back in a few weeks to wrap up the results.

Like the first weekend of rugby’s Six Nations Championship, the first few retention rate announcements of the year mean only one thing; spring is on the way! As the legal sector continues to move apace, law firms are thankful that NQs are—on the whole—staying put.

If you read our recent blog on the battle for talent and skyrocketing salaries, you’ll know that the market for junior lawyers is hotter than ever. As if to prove our point, since we published the blog last week, Milbank have raised their NQ salary to $215,000 (c. £160,000),and Cadwalader are following suit.

With the market this buoyant it is no surprise that the early retention rate announcements are generally very positive.

Magic Circle posts strong results

First out of the blocks this season was Linklaters, which reported a retention rate of 94%; holding onto 49 out of its 52 March qualifiers. This is a strong defence of the firm’s Autumn retention score when it retained 45 of its 48 (94%) final seat trainees.

The second magic circle firm to announce was Slaughter and May which is retaining 85% of its spring intake (34 out of 39); a drop from an impressive 93% this time last year. That said, it’s still a decent result for Slaughters and early projections suggest that this figure will be close to the average retention rate this spring.

At the tail end of last week, Freshfields announced that it was keeping 34 of 37 spring qualifiers for a score of 92%; a 2% drop from last spring. While these soon-to-be NQs may be miffed that their pay packet will be lighter than all their magic circle counterparts, they can console themselves with the fact that they’re still earning a six-figure salary.

The latest result is just as solid, as just yesterday, Allen and Overy were the penultimate magic circle firm to announce their retention rate, and have achieved a very solid 87% retention score with their increased intake of 38 trainees.

All eyes are now on Clifford Chance, which will complete the magic circle picture.

Notable others:

The lowest retention score we’ve seen to date was announced today by City heavyweight Simmons & Simmons, which will be retaining just 4 of their 7 final seat trainees on permanent deals. This is of course a small sample size, but the firm will nonetheless be disappointed with a retention rate of just 57%.

Bryan Cave Leighton Paisner has also posted a slightly underwhelming score of 71%. The Silver Circle firm will be keeping 13 out of 18 trainees across London and Hong Kong and, presumably, 12 out of 17 trainees in London. Having held onto 19 of 22 trainees last autumn, the firm will be looking for this figure to bounce back later this year.

The best result announced to date comes from Shoosmiths, with Legal Cheek reporting that the firm will be keeping all 7 of their final seat trainees, giving them the first perfect score of the season. Coming hot on the heels of the opening of the firm’s first international office in Brussels, it seems that it’s all go a firm which is rapidly shedding its regional image.

The Big Picture:

While the early announcements are somewhat of a curate’s egg, the general picture is certainly looking positive. Out of 197 qualifying trainees, 174 are being retained for an overall retention score (to date) of 88.3%, which represents a marked increase on the last few years.

Will these first seven announcements be a forerunner for a stellar set of results? We’ll update you in a few weeks’ time.

The latest set of qualification announcements has seen the overall autumn retention rate, (excluding NQs retained on fixed-term contracts), decrease from 84.62% to 83.65%.

Among the firms to announce below average retention rates was Bryan Cave Leighton Paisner, which will be retaining 14 out of 19 final seat trainees (76%). Of the five trainees who were not retained, two accepted roles elsewhere while the remaining three were unable to secure positions due to a fiercely competitive NQ recruitment market.

While a retention rate of 76% will never be regarded as a stellar result, BCLP will not be too disappointed given the impact of Covid-19 and the firm’s reliance on high-end commercial real estate work.

Chloe Muir, BCLP’s Senior Graduate Recruitment & Development Manager said ‘Congratulations to our 2020 autumn cohort who overcame a tumultuous final few months. We are delighted to have attracted and retained such a high standard of talent. We wish them all the very best of luck for the future.”

Other firms to perform ‘below par’ (or ‘over par’ for you golfers out there) were Simmons & Simmons, which will be keeping on 13 of 15 qualifying trainees (72%), with one being retained on a fixed-term contract and Charles Russell Speechlys, which is retaining 19 of 26 qualifiers (73%), including two on fixed-term contracts.

Two firms to post above average retention rates were City firm Bird & Bird, which is keeping on 16 of 18 qualifying trainees (89%), and US powerhouse Shearman & Sterling, where 10 of its 11 NQs (91%) have secured permanent positions, (eight will be staying in London and one each will be based out of the firm’s Abu Dhabi and Singapore offices). 

Lastly, I’m sure the top brass at regional firm Weightmans would hate the firm to be described as ‘average’, but their retention rate was exactly that – the firm are keeping on 16 of 19 qualifiers for a rate of 84%.

It’s been an interesting couple of weeks for Weightmans which announced a 6% rise in turnover for the previous financial year (despite Covid headwinds ruining the month of April), just five days after launching a redundancy consultation as part of a long-term strategy to restructure its business.

We’ll keep tabs on any other announcements as the autumn retention season draws to a close and will keep a particularly close eye on the results announced by Gateley and any other firm that chose to furlough trainees or push back qualification dates to the depths of what could be a long winter.