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The cash-hungry assistants the magic circle deserve
Posted 16/04/2007 by Alex Novarese
You could argue City law firms have the assistants they deserve. What they certainly don’t have, as the market gears up for the annual blinking contest that passes for the traditional pay round, are grateful or loyal junior lawyers.
Having blinked first, the below-expectation 15% rises announced by Clifford Chance (CC) aren’t exactly winning hearts and minds, with a good proportion interpreting the move as an attempt to hold down the market with a modest pre-emptive strike.
That hope looks unlikely, as reported by legalweek.com here, with A&O gearing up to hike pay again. Likewise, Linklaters - with a new managing partner eager to court young assistants and profitability well ahead of rivals - looks likely to outstrip CC.
So much for the numbers. However, what is really striking about the debate is the climate of resentment and mutual mistrust in which it is being conducted. Take a look at some of the posts on legalweek.com here.
“Does anyone remember the idea of loyalty to the firm where one trained?” asks one contributor.
“Coffee. Wake. Smell. Up. The. And,” exhorts another, angry at the “comparatively measly rewards” on offer at City firms.
What is worrying for firms is the common thread of 'assistants vs partners'. Many are convinced that partner rewards have vastly outstripped those for assistants; that junior lawyers’ pay has failed to keep pace with UK house prices; and that salaries now pale into insignificance compared with those on offer from investment banks, hedge funds and private equity employers.
That these assertions have become so blithely accepted bodes ill for law firms, even though they are highly debatable.
On a five-year basis, partner profits have indeed outpaced hikes for assistants. But that is a misleading yardstick, since 2002 was the start of a three-year deal slump and assistant pay always lags equity performance.
Go back to early 2000, when the dot.com pay wars started, and you find that assistant pay was around £33,000, before rising to £50,000 by May 2001 - well ahead of partner profits rises.
Even conservatively, junior lawyers at top City firms will be paid at least twice what their equivalents got in 1999, almost exactly matching the doubling of equity partner profits over the same timeframe.
With more aggressive bonuses and flexible bands for mid-level associates compared to 1999, a fair estimate is that high-performing five to six-year-qualified assistants are even better off at many firms, in some cases earning three times what was on offer seven years ago.
The rises have also, at the least, kept pace with house prices in London (ignoring Kensington and Chelsea, which have always operated outside the normal laws of UK real estate).
Likewise, anyone who believes that hedge funds and investment banks are looking to hire lawyers in large numbers for non-legal roles will be in for a rude awakening.
But perception matters and it is clear many assistants believe they are being short-changed. And before we start breaking out the violins for magic circle management, the situation they find themselves in is a reminder that the supposed no-brainer of slashing back equity has had a lot of unintended costs.
Junior lawyers used to accept deferred rewards because there was a good chance they would make partner. Now that career track has been damaged, perhaps fatally so, they demand higher upfront payment for their services. So they cost more to attract, yet feel still less loyal to their employer and are therefore even more expensive to retain. Which, of course, rather defeats the point of cutting equity in the first place.
Like I said, they have the assistants they deserve. What has yet to be proved is whether top firms have actually improved the underlying structure of their businesses or actually gotten any better at providing legal services.
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Comments
To have this debate properly, we need to see some detailed analysis of what happens to a firm's turnover:
what proportion is spent on costs (except salaries), such as IT, premises, stationery, advertising, support staff, etc., etc.;
what proportion is spent on salaries; then build in to the analysis the likelihood of partnership; and
what proportion is left over and paid out to partners.
If this was done over the last 5 or 10 years we could see:
who has benefitted from the large scale cost cutting (e.g. outsourcing document production): has it been partners or both employees and partners at the same rate; and
has the squeezing of equity given more money to partners and by loss of partnership opportunities, meant associates over their legal career are worse off as a group?
The other key point of importance in this debate is what is an appropriate amount for the partnership to retain of its income. Obviously market forces dictate this to a great degree, and it's difficult to answer, but some have tried.
This whole debate has been predicated on the basis that salaries can't rise unless charge out rates rise. For the sake of argument, if the cost savings and reduction of partnership opportunities when compared against salary rises show that associates and partners' income has increased by the same amount, approximately what proportion of your billings each year should an associate be paid? I have been told 1/3rd as a general rule. I get 1/8th of what I charge to clients. If a senior associate bills 2,000 hours at £400/hour, then should they only get 10-12% of that: £80k-95k? What value is there in a partner's relationship with a client and what is there in doing the day-to-day work?
Posted by Associate | 24/04/2007
I do think that this situation is inevitable, as my experience is that people are mainly attracted to the magic circle because of the size of the salaries and because they cannot imagine the reality of the long hours demanded. (I hope I have made the right trade-off as my firm offers its trainees quite robust compensation - quite how the hours in reality are, I have yet to discover.)
In this environment of long hours and isolation, with pressure to bill hours which are charged seemingly vastly more for than one is being paid, I think it inevitable that young solicitors will look across to their barrister chums, and envy them, for they get to keep all the money billed for slaving away into the small hours.
Posted by Marcin Tustin | 18/04/2007
Yes, I am saying that remuneration of both assistants and equity partners has roughly doubled over seven years. It’s pretty standard for businesses to account for their salary costs (and annual reviews) in percentage terms, so that’s why I’ve used that yardstick.
Is it reasonable? That’s certainly debatable. Most people would say that junior commercial lawyers are well paid by traditional yardsticks. Likewise, the rises in their pay have outpaced those offered in many other careers in recent years. I also don’t think it is true that assistants are getting a smaller slice of the pie; they have, to a considerable extent, shared in the recent expansion of the legal services market that has been largely funded by rises in charge-out rates.
I am sure many would argue that assistants should get a bigger slice of the pie but that is a slightly different line of debate. And even then, there are assistants at firms that have half the partner profitability of the magic circle but still get 80% of the remuneration of a magic circle assistant. Should they take a pay-cut? Maybe in the future firms will be judged on a ratio of PEP-to-associate pay to see how fairly they share out the profits. If anyone wants to suggest a formula or a sensible way to cut the spoils, my contact details are on the website and we’d be interested to hear.
But I guess my bottom line is that there’s been faults on both sides. Some firms have crassly fiddled with their career structure in a very short-term manner and communicated poorly with their staff, sacrificing trust in the process. My hunch is that such firms (and readers can guess which they are) will in future pay an increasingly severe penalty in terms of ability to recruit and retain good staff.
At the same time, some assistants have lost a bit of perspective in terms of how they’re treated in the early stages of a career that they did, after all, choose to pursue.
Posted by Alex Novarese | 18/04/2007
You say above: "Even conservatively, junior lawyers at top City firms will be paid at least twice what their equivalents got in 1999, almost exactly matching the doubling of equity partner profits over the same timeframe". Not sure I get your point. Are you saying that going from 33K to 66K as an assistant is reasonable because during the same period a partner has gone from, say, 300K to 600K? Something wrong there.
Posted by Maths graduate, now trainee | 17/04/2007
great shout
Posted by Boz | 16/04/2007