US law firms have escalated the competition for junior talent by increasing salaries for newly qualified associates, despite a continued downturn in M&A activity. Ropes & Gray, Sidley Austin, Paul Hastings, Davis Polk, and Cleary Gottlieb are among the firms that raised salaries for newly qualified staff in January 2024.
The decision to boost salaries reflects the intense battle for talent in the legal sector, according to recruiters and senior lawyers. These increases come against the backdrop of robust revenue performance for many US law firms in recent years, driven largely by lucrative private equity deals.
The upward trend in salaries for junior lawyers is also influenced by the “Cravath scale,” set by Cravath Swaine & Moore, which raised pay for first-year lawyers to $225,000 in November. This move put pressure on other elite US law firms to follow suit, further driving up compensation levels.
Milbank, known for being proactive in adjusting pay and bonuses among top US law firms, raised salaries for newly qualified lawyers in November. The ongoing dearth of M&A transactions, spanning 18 months, has put pressure on law firms, leading to job cuts and reduced bonus payments in some cases.
Despite the challenging market conditions, US law firms are raising pay to retain key talent, particularly in small teams where lawyers are expected to work long hours. The work environment at US law firms often entails round-the-clock availability and greater responsibilities for junior lawyers compared to their counterparts in the UK Magic Circle firms.
UK firms, such as Allen & Overy and Linklaters, have struggled to keep pace with their US counterparts on pay. Last year, Allen & Overy and Linklaters matched the salary hikes by Freshfields and Clifford Chance for newly qualified lawyers after initially holding pay levels.
Magic Circle firms have been expanding their presence in the US market, with moves like Allen & Overy’s merger with Shearman & Sterling. However, US firms still maintain a significant advantage with their more profitable home market and the ability to subsidize their London operations.
Despite the surge in junior salaries, some senior lawyers warn that the lack of deal flow and growing skepticism from New York law firms about subsidizing London operations could dampen future salary increases. The disparity in profitability and workload between US and London offices remains a challenge for US firms operating in the European market.