Market and remuneration trends 2012
Recruitment demand from law firms has continued apace in 2012 despite Eurozone concerns. Whilst some practice areas have slowed down, there has been an increase in demand in many corporate support areas (tax, competition etc) not seen since pre-recession. Demand for associates with 2-5pqe is particularly buoyant, and whilst the retention rate for newly qualifieds remains fairly stable, there are few positions available externally for those not kept on. There has also been some increase in related non fee-earning areas such as professional support lawyers and compliance/risk management specialists.
Strategically firms have responded to continuing global challenges with national and global mergers and alliances, as firms look to secure competitive market advantage. This has led to some selective downsizing, though not to any sizeable degree.
As in 2011, more firms are moving away from the traditional associate lockstep model to a merit based associate development path. 2012 has seen a continued increase in firms doing this, or at least adopting a hybrid system which becomes more merit based with seniority. From a management perspective, the flexibility it gives to remunerate according to a wider range of criteria than pure pqe, means that they can be more flexible in rewarding their best lawyers, and in attracting others within highly competitive practice areas.
Competition for the best candidates is still fierce with the crème de la crème receiving multiple offers. This is especially the case for top tier commercial IT/outsourcing, finance, financial services, white collar crime/fraud and litigation/arbitration lawyers, and UK firms may continue to struggle to attract these candidates, when the financial rewards are indisputably greater within US firms. As in 2011, some firms have responded by offering “sign on” bonuses to highly sought after candidates in particular areas.
However, whilst published PEPs have in many cases increased, the continued uncertainty in the Eurozone has meant that law firms have been fairly conservative in their 2012 salary reviews with predominantly marginal increases, and bonus payments being used instead to retain and attract key players. Most firms have frozen NQ rates (with the exception of Freshfields where under its new merit-based pay scheme, newly-qualified lawyers will earn at least £65,000 – £3,500 more than those at rival Magic Circle firms). Elsewhere there have been only small increases, and those predominantly at 1-4pqe level. Beyond 5pqe the picture is less uniform as even those firms with pure lockstep tend to use an element of merit based pay at this level. Firms who have adopted merit based pay bands are much harder to categorise, and subsequently the ranges can be quite broad
The recruitment market for US firms in 2012 has seen steady rather than spectacular progress. The most buoyant practice areas in terms of recruitment have been finance, funds, financial services, litigation, corporate and tax.
A recent survey in The Lawyer indicated that 23% of associates currently at a US firm said they joined for financial reasons – the highest rated single reason proportionately. With this as a backdrop US firms in London appreciate the need to retain their competitive edge financially. Furthermore as the IH market has improved, attraction and retention of key recruits has become more of an issue, as banks have returned to the market with remuneration packages unequalled even by the NY elite. US firms normally conduct their salary reviews in January. This year has (with only a few exceptions) seen either nominal increases or retention of the previous year’s bands (though associates have continued to progress through pay bands as normal). Furthermore annual bonus payments at NY rated firms in London were frozen in January 2012 (for the fourth year running). Going forward we anticipate the lower bands of the New York figures (most of which had been frozen in January 2012) may rise in January 2013 if the market retains its current level of activity, and the Eurozone crisis does not deepen.
Whilst the NY elite continue to pay associates on the lockstep system, some other US firms have replaced this with merit-based banding remuneration systems, which place the emphasis on skills gained rather than time served, or at the very least where remuneration becomes more merit based with seniority. Consequently, whilst NY rates tend to be fixed and transparent, Mid-Atlantic rates have the greatest divergence in terms of salary bands and salary increases this year.
For further information about salaries reviews in 2012, please contact Lynne McCarroll on 020 7269 9113 or email email@example.com