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Brits have been throwing our weight around in the former colonies lately. “We’ll take Manhattan!” cries Clifford Chance, as it preaches its message of globalism to anyone who will listen. But now, literally, it’s payback time. The price comes in the form of starting-salary ripples that started south of San Francisco, inundated New York, and have now washed up in the City. The great firms of London — lockstep true believers — now find themselves living with the contradictions of their new market. How long can they pay one price on frightfully expensive Park Avenue and another on the frightfully expensive Bishopsgate? And, with the advent of U.S. firms recruiting U.K.-licensed lawyers, how long until the cream of British youth starts complaining about being paid less for what appears to be the same work? As with most moves that shake up the London market these days, Clifford Chance led the way. On April 11 the firm announced a 27 percent increase in the going rate — to �42,000 (about $67,200) — for a newly qualified assistant in the City (that is, a first-year associate in London’s financial district). Those of you reading this in the States, that’s not a misprint: $67,200 for the best the U.K. universities produce to live in a city just a little more expensive than the Upper West Side or Palo Alto. And for first years, it’s a flat salary; no bonus. More senior assistants, all of whom got raises also, are eligible for bonuses — for example, a third-year salary is $92,800 plus a possible 20 percent bonus. Clifford Chance was soon followed by London’s other banking powerhouse, Allen & Overy, and by the second week of May the other members of London’s elite so-called magic circle — Linklaters, Slaughter and May, and Freshfields — had all fallen in line as well. Premier second-tier firms Herbert Smith, Ashurst Morris Crisp, Lovells, and Norton Rose have also matched the raises. Clifford Chance’s move did not take the market completely by surprise. The global giant’s rivals had expected it to take its cues from U.S. firms following its merger with Rogers & Wells at the start of the year. The U.S. firm has raised its salaries in New York to $125,000 for a first-year, and City firms were expecting Clifford Chance to close the gap between the earnings of its U.K. and U.S. associates to quell unrest in London. Peter Charlton, Clifford Chance’s London managing partner, insists that the firm’s U.S. merger was “irrelevant — completely irrelevant. There’s a New York market and a London market. Just because we have got a New York law firm in our firm, it’s not as if we didn’t have a New York office before. We are talking about the London market.” It wasn’t the bloody Yank lawyers, it was the bloody Yank clients, if you follow Charlton’s logic. One of the pressures identified by Charlton is that U.K. assistants are increasingly looking outside law firms, to investment banking, online business opportunities, and in-house counsel jobs. As an assistant at a top firm puts it, these options offer “more money, the excitement of getting involved in a company from the start, or quality of life” over life at a law firm. Sound familiar? The U.S. pay explosion, you will recall, was caused by similar competitive fears, particularly in the dot-com arena. All it took was an above-market dare by Silicon Valley firm Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, and every big firm in the land fell. The U.K.’s Internet revolution lags behind that of the U.S., and so does the entrepreneurial zeal of U.K. lawyers. But it’s not just dot-com fever, or a diluted British variant of it, that has London firms reaching for their wallets. There are more than 30 U.S. firms actively recruiting U.K. assistants. Most of these would hire fewer than ten in a year, though some are likely to take between 20 and 40 each this year. This second, more acquisitive group includes already fast-growing offices like Shearman & Sterling; McDermott, Will & Emery; and Weil, Gotshal & Manges. It also might include those with new expansion plans, such as Gibson, Dunn & Crutcher; White & Case; and Sidley & Austin. About ten U.S. firms are paying New York rates to U.K.-qualified lawyers in London. These include Skadden, Arps, Slate, Meagher & Flom; Brown & Wood; Paul, Hastings, Janofsky & Walker; Dewey Ballantine; Latham & Watkins; Cleary, Gottlieb Steen & Hamilton; and Gibson, Dunn. For example, Latham pays $125,000 for a newly qualified lawyer, with a guaranteed $5,000 bonus for 1,900 billable hours and a discretionary bonus of up to $40,000. Skadden pays $140,000 with no billable hours target or set bonus. Most U.S. firms pay so-called mid-Atlantic rates to U.K. associates — less than in New York but at least 20 percent higher than salaries at English firms. These include Weil, Gotshal; Cadwalader, Wickersham & Taft; Mayer, Brown & Platt; McDermott, Will; Shearman & Sterling; and White & Case. Shearman, with more than 100 lawyers, is one of the largest U.S. offices in London, with roughly a fifty-fifty mix of U.K. and New York lawyers. It pays $80,000 plus an unspecified bonus for newly qualified U.K. lawyers. These salaries are big money to U.K. assistants, who qualify with few debts compared with their U.S. counterparts. The U.K.’s state-subsidized education system and law firms’ sponsorship of postgraduate study ensure that after at least four years of study, the typical law school graduate owes less than $10,000, compared with the six-figure debts common in the U.S. Trainee lawyers then spend two years working at a law firm before qualifying, for which City firms pay a starting salary of about $33,000. Most U.S. firms prefer cherry-picking assistants with a year or more of experience at a major City firm. So far, the Americans can’t cherry-pick at will, their better pay offers notwithstanding. To get a job and establish oneself at a top City firm takes time and emotional commitment, and few assistants will throw it all away for money alone. They worry about the security of jobs at some U.S. firms, the reputation for grueling workloads, and the quality of work available at U.S. firms’ relatively small offices — fears that U.K. firms are happy to encourage. Those arguments are beginning to pale as U.K. firms adopt all the U.S. ways — except for the paycheck. Assistants have been working longer and longer hours under increasing pressure, and they have watched the profits of their firms’ partners soar without sharing in the spoils. The booming European market has put the magic circle firms plus Herbert Smith and Lovells in the 30 most profitable firms in the Am Law Global 50 rankings [November 1999]. With profits per partner ranging from Lovells’s $710,000 to Slaughter and May’s $1.12 million, these U.K. firms are in the same league as those U.S. firms that have hiked their pay rates, yet the U.K. firms were paying less than half the U.S. rates to their assistants. “People here know what the compensation levels are across the Atlantic and can see the profitability of those firms and can see the profitability of U.K. firms and are saying, �We make a contribution as well,’ ” says Ian Nisse, managing partner at Ashursts. Now that U.K. firms are responding to this pressure, the question is how they will afford to give the raises. Though the new salaries do not match those now paid in the U.S., the leverage at U.K. firms means that there is a disproportionate effect on partners’ bottom lines. The most profitable U.K. firms’ London offices have assistant-partner ratios of about 5:1, compared with 2:1 or 3:1 among the top firms in the U.S. Among midsize U.K. firms, which have traditionally matched the salaries offered to magic circle assistants, there could now emerge a distinct group of about ten premier firms that can afford to pay the new going rate. The next 20 firms below this group have also traditionally matched the starting salaries at the magic circle firms. These firms may not be hit too hard in the short term because they have lower assistant-partner ratios (around 2:1). But getting assistants to do the work is the route to profitability at U.K. firms, and midsize firms may face a choice between increasing salaries and increasing leverage. But there is a third way. To pay for the raises, U.K. firms are likely to adopt decidedly un-English practices — causing them to run their businesses more like U.S. firms. Compared to their U.S. counterparts, U.K. firms are less performance-driven in rewarding assistants and compensating partners. Ashursts’s Nisse says: “English firms are not as focused on properly recording the hours as American firms are. But English firms will have to be more focused on that, so that if time is properly spent on a client’s file, you will record that. If there is full recording, then we can determine on a transparent basis with the client a fair and proper fee for the matter.” Bird & Bird, with partner profits of $614,000 (according to The Lawyer‘s survey of the top 100 British firms), is among the group of firms that might try to match Clifford Chance. But the firm’s chairman, David Kerr, says: “One of our major concerns is to avoid the trap of introducing increases so that, to maintain profitability, you have to increase … rates.” Instead, newly qualified assistants at Bird & Bird will be paid $60,800, with a 30 percent discretionary bonus that Kerr says gives them the chance to earn more than their magic circle counterparts. But this in itself introduces a merit element that threatens U.K. firms’ traditional pay structure, which partners outside key departments like corporate and finance already feared was under threat. As part of its package, Clifford Chance has made salaries for assistants qualified for four years and above “market-linked,” with a bonus of up to 40 percent to reward individual performance. “It’s absolutely merit-based, and my understanding is that other firms are going to follow suit,” says Charlton. This approach introduces competition that some firms still find hard to accept. “We have one salary for each level irrespective of performance or practice area,” says Martin Pexton, director of personnel at Allen & Overy. “The reason we have done that is that we believe it avoids internal disharmony.” But Pexton says that Allen & Overy will introduce targets for billable hours, a practice uncommon among U.K. firms but one that many are contemplating introducing. The average Allen & Overy assistant has billed about 1,500 hours; the new target will be 1,600. Rigorous recording of hours, bonuses that reward performance, billing targets — where does it all end, a rueful British partner might ask an American counterpart. The chief executive of an international midsize City firm says: “There is more than a drift toward American operational practices, and that will increase, and in not much time it will be pretty much indistinguishable — longer hours, for higher remuneration, holding charging rates steady or even reducing them, with lower multiples.” At that point, what’s to stop a flood of U.K.-U.S. mergers? That’s not a barbarian at the gate, mate. That’s just you.

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