Who would be a newly qualified lawyer?

There has been an awful lot of noise around newly qualified lawyer salaries.? The headline tells us that a newly qualified (NQ) lawyer could expect to earn north of ￡180k.?

No one is suggesting that ￡180k is not a lot of money.? But it’s always an interesting exercise to work out what’s really going on.? Let’s try to unpick the story.

It’s not really ￡180k

Some law firms pay less than others.? Small firms, regional firms, firms specialising in criminal defence work (say).? None of these will pay anywhere near ￡180k.? So, the first thing to say is that there are a but a handful of firms paying the headline figure.? Most clearly do not.?

We should try to right size our data set.? Let us assume that the ￡180k salary is reserved for NQ solicitors in major US law firms with a London presence.? If we try to hypothesise what the salary would be for a NQ in a magic circle firm, then we probably wouldn’t be a million miles out if we landed at ￡150k.? And if we wanted to think then about what a mid-sized city law firm would pay, we could hazard a guess at a tad north of c.￡100k.? Clearly, other salary levels are available, should anyone wish to comment that they earn a different amount.

You can see what I am getting at.? We’ve already got to ￡100k, from just reducing the scale and geographical footprint of our example firm only marginally.? If we build out the picture away from commercial law, and outside of London, the numbers just keep getting lower.?

￡100k is a nice round number.? Let’s take our mid-sized city law firm as an example.

Was it always like this?

“Always” is a punchy term. I think most people would hazard that lawyers have always earned a “lot” of money.? But this is a hopeless piece of (non) analysis. I will try to bring some intellectual rigour to the debate.

If I roll the clock back 30 years (which takes me, give or take, to 1994), I would suggest that a NQ lawyer at a mid-sized city firm would earn in the region of ￡26,500.? Very specific, you may say.? And I would agree.? But it’s built off one data point, so we shouldn’t get too excited.

I can then have a think about what ￡26,500, 30 years ago, is worth today.? There are actuarial tables that will tell me this, and also predict my chances of living long enough to find them.? Life is way too short.? So, as an alternative, I will compound up ￡26,500 by a randomly selected 3% per year for the 30 years in question.? Which (once I have applied some judicious rounding), takes me to c.￡70k.?

You may disagree with my broad-brush approach, but it tells me that if we can get comfortable with ￡26,500 being within the bounds of reasonableness 30 years ago, we should similarly be accepting of about ￡70k being paid today.? Give or take, one can see the bridge between the two numbers.? So, this is data point number one – there is no doubt that the NQ lawyer salary has shifted faster than one would expect if we simply took into account a broad proxy for inflation linked salary increases over the period.

I can then add in an additional data point.? What would a newly qualified accountant have earned 30 years ago?? In a big Four Firm, say?? It’s always difficult to be precise about these things, but my opening gambit would have been, give or take, the same as the newly qualified lawyer in a mid-size city law firm.? Again, built from my traditional single data point.

And here is where the sums get interesting.? It’s not my place to comment on what a newly qualified accountant in a Big Four firm would earn today.? But some vague approximation would put the range between ￡50k and ￡60k, maybe.? And this is data point number two.?

So, our two data points tell us that NQ lawyer salaries have increased by more than one would expect in isolation.? And increased by more than one would expect in relative terms as compared with a branch of professional services the legal market previously used to track quite closely.?

So, it is a real thing.? The question is…why?

The hypothesis

Very gradually, since the 1970’s, we have seen a trickle of US law firms open their doors in London.? Some have opened a satellite office with no UK legal capability.? Some have grabbed local teams and built incrementally thereafter.? Some have created an affiliation with an existing London firm.? Some have merged or acquired existing London practices and built therefrom.? The growth strategy selected is neither here nor there.?

What is relevant, is that this new entrant to the UK legal market, by whatever route, is missing three things that go to the root of how much they need to pay to acquire talent:

• An absence of brand
• An absence of employee value proposition
• An absence of talent pipeline.

Given the impossibility of fixing these three things overnight, a US law firm wishing to dip its toe into the London legal market needed to throw money at the problem.? They therefore paid way over market to acquire some talent.? So far so good.

What’s the real story?

The real story is that the UK firms stared at this land grab of talent and responded in kind.? They started paying more also.? And once you get into a tit for tat inflationary pay offer, it’s not long before your ￡70k gets to ￡100k, and then ￡150k.? And then, lo and behold, ￡180k.

But even that’s not the real story.? The real story lies in two knock-on effects:

• First, if you do pay the “most”, then you expect the world of the recipient.? No demand is too great.? No request can be turned down.? You’ve paid for it, after all.
• Secondly, the recipient can’t really afford to move.? By which I don’t mean that someone can’t live off ￡70k as compared with ￡180k.? Because they clearly can.? But the required lifestyle adjustment to adapt to a (say) 60% overnight pay cut is not as easy as it sounds.?

These two points tell us that the pay inflation that has led to the ￡180k NQ salary is not really a war for talent, in the traditional sense.? There is no shortage of people wanting to become lawyers.? And a newly qualified lawyer would have to go some to possess skills that are scarce (with apologies to all newly qualified lawyers out there).? What it represents, in reality, is a defensive lock-in of the talent that has proven they can take the punishment.? Once locked in, its just too difficult for the lawyer to shift.? After all, its not as if working in a smaller city law firm is a ticket for a quiet life.

And if you buy the hypothesis, then you can see that there remains an opportunity for the law firm of the future to adjust its Employee Deal to produce a better outcome.? Because a "defensive lock in of talent that has proven it can take the punishment", is really no deal at all.