Why Biglaw Firms are paying ‘Almost 8% Above’ Magic Circle Peers

Magic Circle firms are known as Biglaw for their large pay packages, but even by their standards, the base salaries of Big law firms are sizable. Recent studies have shown that the average first-year associate at top U.S. law firms makes almost $180,000 per year or nearly 50% more than peers at magic circle Biglaw firms in London make (i.e., magic circle firms that compete with the Big law firms in this article). One obvious reason why Biglaw may be paying more than magic circle firms could be that American lawyers are simply more expensive to hire than their English counterparts.

Latest salary and bonus data from 2019

Biglaw firms in the US enjoy more generous compensation packages than anywhere else in the world, even compared to other Biglaw firms. In 2017, the average compensation for a first-year lawyer at a top-tier law firm was over $200,000 with an average starting salary of $230,450. This means that senior lawyers can make up to eight times as much on average (and sometimes much more).

In 2018, BigLaw salaries were generally around 40k higher than their counterparts in London’s Magic Circle – partly due to revenue generation and also because these firms tend to offer more diverse areas of practice and career options.

The #1 problem

To be frank, big law is not for the faint of heart. It’s a cutthroat industry where you have to pay your dues and work very hard to get any semblance of a successful position.

Unlike some other firms, firms like Skadden, Kenyon, and Cravath offer high first-year salaries that allow lawyers to make as much as $180k if they take on a lot of responsibility. And while it’s not easy money by any means, it can seem easier at times than those two or three years in associate positions with partner track law firms like Freshfields Bruckhaus Deringer or Herbert Smith

Freehills where the salary will be slightly lower because less responsibility is required on the part of an associate attorney.

What is driving the gap?

Although it is difficult to pinpoint the exact reasons for this gap, certain ones stand out. First, there is the size of the firms. Magic Circle firms typically operate in a one-tier partnership system, which allows partners to split profits on an even basis and distribute equity from incoming members equally. American law firms on the other hand generally function in a two-tier partnership structure,

where profit splits and distributions depend on individual performance and seniority within the firm. In recent years this dichotomy has been less clear as some of America’s biggest law firms have adopted equity distribution systems resembling those found in their British counterparts.

A competitive market – The ideal candidate

The emergence of the legal recruitment market has created a fiercely competitive environment for lawyers. With so many law firms now competing for top-tier talent, hiring managers have begun to offer extremely lucrative packages to keep their best attorneys from looking elsewhere.

To maintain their competitive edge, high-Biglaw firms have increased salaries and benefits to be in line with what competitors pay. Currently, the average starting salary at top-point law firms is higher than salaries at international legal giants such as Herbert Smith Freehills and Clifford Chance.

Inflation vs. recruitment costs

Studies have shown that over the past five years inflation has increased by 2%. What’s less clear is what type of inflation is this. It could be that a more advanced job pays more in the form of specialized training and skill development. Or it could just be the cost of living inflation. No matter what,

for these reasons and others, Biglaw firms have been reported to be paying almost 50% above magic circle peers per headcount salary as compensation for their exorbitant salaries and ancillary benefits. This means that if one practices at a law firm in London they would make almost 50%, on average, more than if they worked at a law firm in Paris.

What can we expect?

We can expect to see this trend continue as the UK legal market sees a change. It is not just about the amount of money that is in the wage, but it is also about competition for talent from other global Biglaw firms. The fact that UK firms have traditionally been seen as low payers has lowered their appeal to candidates with international aspirations.

Now there’s finally more work available in the country and some of it at a more competitive level, they’re eager to attract top talent. And as technology reduces the need for an expensive workforce, it will be harder and harder for these countries to compete with London in terms of hourly billing rates alone.

Will all firms pay the same?

Top-tier Biglaw firms—those ranked among the elite magic circle firms such as Wachtell, Sullivan & Cromwell LLP, Allen & Over LLP, Linklaters LLP, and Skadden, Arps, Slate, Meagher & Flom LLP—may be paying more to hire lawyers with the very best credentials. We do know that these elite firms make up just 10% of all law firms. The flip side is that there’s less competition for those jobs among a smaller pool of applicants.

It also appears that only 10-15 percent of recent grads from top schools are accepted into one of these prestigious shops at the entry level it could make sense for them to offer a higher salary than other companies to draw graduates from prestigious schools.

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