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Junior London lawyers -- especially in property and banking -- should not expect large salary hikes this year, but the best midlevel associates remain in demand, according to new research.
Those are the key findings of a recent survey, which underlines widespread expectations that the current slowdown in commercial activity has ended the upward pressure on salaries for most levels of assistants.
The poll of nearly 150 senior U.K. partners found that 57 percent thought associates will see a modest increase in salary, while 38 percent thought salaries will remain static. Three percent were expecting to see cuts in pay bands, while 2 percent were forecasting "considerable rises."
"I suspect that there will be no great jumps in salaries this year," said Jonathan Blake, senior partner at SJ Berwin. "The last few years have seen a number of very large changes, but now firms will be looking at more modest levels while the market plays out."
Richard Ziegler, a senior consultant at EJ Legal, said: "There will be modest increases this year. I cannot see, in current market conditions, how firms will be able to significantly increase pay."
The findings come after Legal Week recently reported that leading London firms are considering whether to make changes to their pay bands, although firms are currently dead set against the kind of raises seen in the boom years of 2006 and 2007.
"The bargaining position for associates has seriously diminished. Most of them will not have been through a downturn before, so there may still be a mismatch in terms of their expectations," said one partner.
"Firms should explain to associates very frankly what the market position is and what is likely to happen," he continued.
LOCKSTEP OUT OF STEP
The poll found clear expectations that a slowdown in commercial activity will see a further move from the assistant "lockstep" model, where the bulk of junior lawyers' pay is determined by years of post-qualification experience, toward a more merit-driven system.
The advantage for law firms with a merit-based system is that they face less pressure to pay their weaker performers and less profitable departments "market rates" determined by the overall level of demand.
Seventy-three percent thought a slowdown would, substantially, contribute to such a shift, with a further 6 percent "very much" expecting a move toward merit. Only 1 percent believed that it would have no effect.
Signs of this are already evident, with firms including Norton Rose creating a new career structure whereby associates are awarded on a merit-based assessment criteria.
"It has been received as a positive career development for associates because we look at skills," commented Norton Rose London managing partner Deirdre Walker.
"There is already evidence of a shift," said Mark Wagner, senior manager at recruitment consultant Shilton Sharpe Quarry. "People are moving from the old system and need to be paid for their job and role."
WAKE-UP CALL FOR GENERATION Y
The findings and general tone of comments illustrate a clear feeling that partners have grown weary with what they view as the excessive demands of so-called Generation Y solicitors, who have vocally asserted their demands for pay rises and work-life balance in recent years.
Many partners believe a leaner business environment will be a reality check for junior lawyers who have grown used to being assiduously courted by leading London firms during boom markets.
One respondent commented: "A bit of a recession will do some of the poor dears good. The amount of time that is spent on the high-maintenance assistants is a drain on resources. This may mean that we start looking at the position with business-focused eyes."
Ingrid Saffin, a commercial property partner at Mundays, said: "There is no doubt that we are in an unpredictable period just now, and this, obviously, has an impact on the legal job market. The key is to identify growth areas and recession proof sectors to make sure expertise is aligned with it."
Nevertheless, there remain areas in which partners sense considerable demand for assistants. Notably, only 24 percent of the 137 respondents claimed there was no pressure to raise assistant salaries at any level, with 35 percent saying that pressure existed for the "best midlevel and senior associates."
A further 41 percent cited pressure in a handful of isolated practice areas.
HELLO LITIGATION, GOODBYE BANKING
Asked to highlight the two practice areas in which there is the most demand for junior lawyers, 54 percent of respondents said litigation stood out as the clear winner. The other two areas still in most demand were corporate and insolvency/restructuring, both cited by 42 percent, well ahead of other areas.
In contrast, property was the practice area with least demand, with 47 percent, just ahead of the 46 percent that highlighted capital markets.
Banking was also cited as a low-demand area, cited by 36 percent of partners, well ahead of the next practice area cited, intellectual property/technology, media and telecoms.
EJ Legal's Ziegler commented: "Associates are now nervous to make moves. It is not a terrible market, but there are fewer jobs in some areas."
What the Partners Said
- "Successive strong increases for assistants over the last few years mean that more of them are likely to be made redundant; Olswang was the first to fire people, but it won't be the last."
- "Like house prices, associates' salaries, particularly for those of three years' PQE and under, have seen sharp increases over the last few years. In some cases, those prices have been out of line with the value actually added. Some correction is inevitable."
- "If there's going to be a decline in demand or in rewards, then I would only expect it to bite later in the year should economic circumstances require."
- "The next six months will be crucial to see whether liquidity, investor confidence and market demand returns. The matters affecting this are both national and international."
- "The market has become distorted, and some relatively useless assistants are commanding salaries that would not be tolerated in any other business. This adds to pressure on fees and, generally, means that we as a profession are not controlling our cost base. We have to realize that this is still a merit-driven economy and stop being afraid of telling those who are below par that they will be paid accordingly, or told to leave, so that the money that is available can be spent on those who add value. Unfortunately, the nannies in the HR world seem to tell us that we cannot behave in the way that a normal economy would dictate, and for some reason we listen to them."
- "Assistant/associate pay levels are, currently, completely unrealistic -- expectations have been poorly managed, with the result that many junior lawyers feel underpaid when, in reality, they are vastly overpaid for the level of return they make to the firm and the level of expertise they are able to contribute to client matters, not to mention the general reluctance to put in the hours to merit the pay. There needs to be a readjustment to return salaries and expectations to a more realistic level."
- "Assistants' expectations will require management as they have become accustomed to substantial hikes in bands year-on-year."
- "Associate salaries have been highly inflated for too long, and the current market should start the shift back to some semblance of normality."
- "This is a blip, and it is too early to tell if it will be a serious blip with structural consequences or will lead to no changes of any consequence. What's different from before is that lawyers are paid so much more, so the cost of carrying idle hands is serious. As for the attitudes of Generation X or wherever we are now, that will disappear if the economic climate gets really cold because the No. 1 priority will be to have a job, any job."
- "The bargaining position for associates has seriously diminished. Most of them will not have been through a downturn before, so there may still be a mismatch in terms of their expectations. Firms should explain to associates very frankly what the market position is and what is likely to happen from past experience of downturns. If expectations are not properly managed then this is where a firm can get into trouble. Firms should also be careful to resist going too far with rewarding individual financial performance. An 'eat what you kill' approach in a downturn can spell disaster both in terms of not delivering services from the right part of the firm -- because associates hold onto inappropriate work -- and in terms of morale."
- "Corporate lawyers will no longer be able to claim they need to be compensated for the long hours worked. Suddenly, their work-life balance will be looking a lot healthier, and they might now have the time to spend the money they made over the last few years, thereby helping the U.K. ecomony."
- "Assistants will not be pressing for higher pay other than their annual change in band, especially if they are not as busy as they have been. Partners will be monitoring costs and hoping that natural wastage will remove the need for any redundancy, although so far, we have been busier than ever. Law firms are slower than previously to make redundancies, at least until somebody else makes the first headlines. However, if the downturn is prolonged and there is a substantial decline in the income of law firms, the partners will panic."
- "Generally speaking, I would expect salary increases this year to be not much more than inflation. The previous few years have seen great pressure to increase salary bands to levels which are, frankly, unrealistic. Some firms have paid them because of pressure to have 'bodies' doing the work. Not being a partner in a Magic Circle firm, I have been surprised and disappointed by the competence -- or lack thereof -- of some of the junior people in the Magic Circle firms."
- "Assistants should have more moderate expectations about pay increases -- at least that is what the partners think."
- "It feels as though there is an almost a total reversal of the position we faced a year ago. In my firm, the assistants have just gone through a redundancy exercise. There is, consequently, no pressure at all for salary raises. If this is a more widespread phenomenon throughout the market, we should start to see a little wage inflation in transactional assistants' salaries."
- "London law firms have had a very good year, and this will be the first time for a long time that they will be looking at pay reviews in a downward market on the back of a previous strong year. To do little will result in widespread annoyance as the assistants will see all the press about high PEP from last year. Firms would do well to reward assistants for the hard work of last year -- it may be some time before they will get large pay hikes."
- "For old-timers like me -- déja vu."
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