Hong Kong
In an old joke, heaven is defined as having a wife, cook, house and salary of different nationalities. Depending on the teller, the cook might be Chinese or Italian, the wife Indian or Japanese, but the salary is always American.
U.S. firms' big push into Hong Kong law practice over the last two years has now given more lawyers in the Chinese territory a shot at that particular slice of heaven.
Many of the American firms, including Cleary Gottlieb Steen & Hamilton and Simpson Thacher & Bartlett, have opted to pay all of their associates, whether U.S.- or Hong Kong-qualified, "New York scale" salaries starting at $160,000 for first-years. Such moves have raised the prospect of a salary war in a market where many international firms have heretofore maintained different pay scales for U.S., U.K. and Hong Kong practice lawyers. The locals generally earn slightly less than the British lawyers, who in turn start at salaries almost 75 percent lower than their U.S. counterparts.
"The legal community is very small in Hong Kong," says an associate in the Hong Kong office of Linklaters. "Everyone knows everyone, so it's very easy to find out how much firms are paying."
Simon Wiggs, a consultant with legal recruitment firm Major, Lindsey & Africa, says the higher American salaries are definitely on associates' minds. "When you are working until the small hours of the morning and you realize your peer who is also doing the same work some levels up in the same building is getting paid double what you're getting, you are going to think about that," says Wiggs.
The current uncertain economic climate has slowed activity to an extent, but American firms that have recently launched Hong Kong practices have been filling their associate ranks. Kirkland & Ellis, which last year laterally hired a group of eight partners in Hong Kong, has taken on at least 25 associates since then. Simpson Thacher, which started a Hong Kong law group in November with two partners recruited from Linklaters and Freshfields Bruckhaus Deringer, has recruited 11 associates. Cleary, which launched its Hong Kong law practice in February 2011, has hired 10 new associates over the past 12 months.
One Hong Kong associate who left Allen & Overy last year to join a New York firm says pay was definitely a factor in his decision. "I am now getting paid New York rates and am earning 75 percent more than I did last year," he says.
An Allen & Overy spokeswoman declined to comment on the firm's specific compensation packages for associates but said the firm's salary packages are competitive enough to attract high-caliber lawyers.
Wiggs notes that money talks especially loudly in Hong Kong, where young lawyers in high demand have become accustomed to looking for a better position almost as soon as they have settled into their last one. "It is very rare to find lawyers in Hong Kong who have stayed at a single firm for almost the entirety of their career," says Wiggs. "They will choose a firm because it offers an iPad."
Rob Green, managing director of CML Recruitment in Hong Kong, agrees. "There's a lot of movement in Hong Kong because people tend to move every 18 to 24 months," he says.
Raising salaries across the board to match the New York scale would be an unpleasant prospect for many firms, especially U.K. firms which tend to have much larger offices in Hong Kong. Several sources familiar with the market say Freshfields has taken the step of raising some of its Hong Kong corporate associates' compensation to match that offered by U.S. firms. Freshfields declined to comment on any adjustments to its Hong Kong compensation packages, though the firm's Asia managing partner Robert Ashworth says: "We recognize that the market for legal talent is converging and we have put in a place a compensation structure which rewards at the top levels in the market."
On the other hand, Magic Circle rival Clifford Chance says it has not budged on compensation. "We are not doing anything different [in terms of hiring strategies]," says a firm spokeswoman. "It is not in our culture to follow anybody, especially since we haven't had any issues with talent."
Likewise, Herbert Smith's managing partner for Greater China, Andrew Tortoishell, says his firm is not concerned about new competitors "trying to catch up" by "paying over-the-odds salaries."
"On more than one occasion," he says, "we have actually had candidates who, after accepting a position with a U.S. firm, have returned to us within a few months asking to be reconsidered for a job at Herbert Smith."
To be sure, money is not the only factor for everyone. Though he knows he might make more elsewhere, the Linklaters associate says he prefers to stay put because he likes the partners in his group. Linklaters declined to comment on the firm's associate compensation.
A second-year Hong Kong associate at Paul Hastings, who says his firm started paying New York salaries to all Hong Kong associates in 2010, notes that the longer history in the market of Magic Circle firms, which built local law practices in the days when Hong Kong was a British colony, still matters to some young lawyers. In particular, he notes, associates aiming to go in-house at Hong Kong banks or trading companies generally regard Magic Circle firms as a better stepping stone.
Wiggs also notes that those associates eyeing partnership may be hesitant to jump to a U.S. firm without a long track record in Hong Kong practice. "Associates may find it easier to make partner at a U.K. firm," he says.
And, of course, a slowing economy could have an amazing effect on associate attrition. Fears about the tumble in the property market in mainland China, the stability of domestic Chinese banks, and the Chinese manufacturing sector's exposure to the eurozone crisis all contributed to an easing in deal flow in Hong Kong towards the end of last year.
"The need for lawyers at U.S. firms has slowed down a lot," says Wiggs. "So those who were looking but didn't make the move last year may have missed their boat."
