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FT editor Roula Khalaf selects her favourite stories in this weekly newsletter.
This month, London has seen an increase in the number of lawyers in their twenties who can afford to eat in expensive restaurants and take luxury holidays. Linklaters last week became the latest City law firm to increase fees for its newly qualified juniors to £150,000 a year, while US rivals are paying even higher amounts.
That’s quite a pay gap compared to recent graduates in jobs like publishing and the arts, where £30,000 is considered a decent salary – but it assumes that the lucky ones get a break to relax. When you’re working 50-70 hours a week, and evenings and weekends are often filled with urgent legal work for corporate clients, time is precious.
Nor are they as spoiled as they might seem to the companies who foot the huge legal bills to employ them, or to NHS junior doctors who receive less than a third of that amount at a similar stage in their careers. After tax and student loan repayments, the new lawyers, whose talents are eagerly sought after by global law firms, are left with £80,000, much of which goes towards rent in London.
Still, I’m glad that at least some of this hard-pressed generation are being treated so well, with the prospect of earning more as the years go by and one day becoming partners whose profit shares in British firms can reach up to £2 million. This is a salutary contrast to other professionals who have little hope of such rewards, despite having attended top universities and working pretty hard themselves.
We can thank the US for making this possible. Linklaters followed Freshfields Bruckhaus Deringer, its rival “Magic Circle” firm in the City. Freshfields, under pressure from American firms, has increased the fees for lawyers graduating from two years’ training by 50 per cent over the past five years. Quinn Emanuel, a US firm specialising in litigation, raised its UK starting salary to £180,000 this month.
I once lived in New York next to two young lawyers who had graduated from Ivy League universities and had just started at elite Manhattan firms. We chatted amiably when they arrived, and I rarely saw them again after that, as they spent most of their lives at work. The best evidence that they still existed was the pizza delivery guys who stopped by their homes late at night.
They were paid well (the benchmark salary for newly qualified lawyers in New York is currently $225,000 before bonuses), but they also had to sacrifice a lot. Associates toiled away at taking evidence and preparing endless transactional documents. “They use their brains to make a lot of money, but the hours are often relentless,” says Chris Clark, director of legal recruitment firm Definitum.
Such remuneration for young lawyers is lucrative for US firms in London: “It sounds like a lot of salary, but it isn’t,” says a senior partner. An associate lawyer might earn more than £200,000 three years after qualifying, but he also does 2,000 billable hours for which his clients can be charged at £400 or £500 each. This brings the partners income of up to £1 million.
This also means that young lawyers are in high demand: US firms traditionally offer at least 20 percent more to attract them after they complete their training at firms such as Linklaters. They can outbid traditional UK firms because their large and profitable home market brings them a lot of money: payouts to partners at leading US firms can exceed $5 million.
This raises the question of whether Magic Circle firms are being forced into a wage war with US rivals that they cannot win. They boast of offering a (slightly) better work-life balance and wider opportunities, but money makes the world go round. One Magic Circle partner says that juniors sometimes protest: “If I’m working so hard, I might as well move to a US firm.”
The mere presence of the US means that young lawyers in the City earn far more than other professionals can imagine, almost as much as junior financiers. Without the arrival of major US law firms such as Latham & Watkins and Kirkland & Ellis, the magic circle would not have had to raise its salaries for them and those higher up the pyramid.
A similar phenomenon has not occurred in the NHS, where junior doctors went on strike last year for higher pay. These doctors also work extremely long hours, but are employed by state-funded NHS trusts and must emigrate to other countries to benefit from better pay and working conditions. Other health systems will not accommodate them in the same way that US law firms moved to London.
It’s hard to argue that junior doctors are less valuable workers than in-house lawyers and don’t deserve equal treatment, but they won’t get it because there’s no alternative with higher offers than the NHS. The lesson is pretty stark: if you’re a professional, work in a sector that competes globally, otherwise you’ll be earning a lot less than you could.
When young lawyers have enough free time, they can invite their friends to dinner. They have worked for their happiness, but they should also give it to others.