The entry of more and more US-headquartered firms in the London legal market in the past few years has brought notable changes to the competitive environment in the City. The traditional UK leaders have found themselves in a battle with American rivals who often arrive at Britain’s shores with more money available to invest in talent and resources.
One of the most noticeable areas in which UK firms are struggling to compete is in relation to talent. It is no secret that US firms pay more at practically each level. The top 14 trainee starting salaries and newly-qualified (NQ) lawyer salaries in the City are at US firms, according to Lawyer2B. NQs at US outfits can earn up to £101,000, while those at UK firms get no more than £70,000. At partner level, the leading US firms’ ability to buy in the best names in the City is clear. One example that illustrates this is Kirkland & Ellis’s hire of Weil Gotshal & Manges banking star Stephen Lucas in 2014, awarding him a profit share reported by The American Lawyer to be worth nearly $8m.
US firms’ generally higher profit per equity partner (PEP) and top-of-equity figures help them hire the biggest billers, but the other enabling factor for many US firms is the flexibility of their partner remuneration systems. While exceptional American firms such as Cleary Gottlieb Steen & Hamilton and Debevoise & Plimpton still use the relatively inflexible lockstep model, the bulk of US-based businesses can lure partner recruits or retain rainmakers by elevating them in the pay ranks and deal appropriately with less profitable partners by limiting what they earn. Even certain top-end US firms that claim to operate a lockstep in fact have flexibility built into their partner pay systems.
UK firms traditionally operate locksteps so are less flexible and are vulnerable to US firms poaching partners. As a result of this competition, many UK firms are tweaking their systems to stave off these advances and aid their own hiring.
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This article was written in conjunction with Joshua Freedman.