Posted by Shannon Aldis, a senior recruitment consultant at Legal Futures Associate AJ Chambers
Aldis: Salary growth bubble will burst in next couple of years
Can we take a moment to talk about salaries? Specifically, salary bunching.
When deciding where to train, or deciding on a newly qualified (NQ) position, many aspiring and training solicitors are probably lured in by the high NQ salaries, and who can blame them?
However, NQ salaries alone are not necessarily a good indication of future earning potential.
Whilst most law firms disclose their NQ starting salaries, future earning potential is sometimes kept under wraps. Even for recruiters, it can be difficult to get a clear answer on salary bandings and how they equate to certain PQE levels.
“The salary is flexible and dependent on the individual” is the phrase we come across most from clients in our industry.
However, through our market knowledge, we do have a pretty clear grasp on the market rate. Earlier in the year, Legal Cheek opened a forum in which solicitors were asked to disclose the salary bandings at their current firms, providing never-before-seen insight into the pay structures of London law firms.
While we are unable to validate the data contained in that forum, it did confirm something we had already suspected: salary bunching is real and, as Legal Cheek termed it, “the unspoken effect of the war on talent”.
What is salary bunching?
Salary bunching refers to a pay structure where employees do not necessarily see pay rises in line with their increased experience.
For example, one individual mentioned that an international law firm was paying its NQ solicitors £95,000, its one-year PQE solicitors £96,000, £98,000 for those with two years’ PQE, and £101,000 for those with three years’ PQE.
As an NQ (or aspiring solicitor), a £10,000 increase in salary over three to four years is not necessarily what you would expect, given the flashy starting salary.
What is driving this trend?
The war on talent is unrelenting. When the major US firms entered the UK legal market, they set salaries soaring, with some NQ solicitors offered pay packets above and beyond £150,000.
This puts the rest of the market in a quandary. Lawyers at US firms are not necessarily working longer hours than those lawyers at magic circle firms, but they are in some cases earning £50,000 more.
To try to stop a mass exodus, the magic circle and other elite UK-based firms have had to increase salaries to attract and retain young talent. This sparks a chain reaction and soon all law firms are upping salaries in order to compete.
The problem comes when NQ pay increases are not replicated to the same extent as those with more experience under their belts.
This is not to say that more experienced lawyers are not benefiting from raises in pay, but in most cases, their increases are watered down.
When will this bubble burst?
Many consider the huge pay increases we are currently seeing at the junior end of the market to be unsustainable.
The more firms pay their lawyers, the more money the firm has to earn. Cost is inevitably going to be passed to clients who will end up paying more for the same level of service.
Reluctant to fall too far behind the market rate, salary bunching may be one way that firms have tried to balance this issue. If they can get away with paying a three-years’ PQE lawyer only £6,000 more than an NQ, why wouldn’t they employ this tactic?
Many suggest that the salary growth bubble will burst within the next couple of years, and I suspect they are right.
Allen & Overy and Linklaters both made waves when they announced earlier this year that they were bucking the trend and not going to rush to match others’ NQ rates, deciding instead to “consider the impact of any changes in the wider economic context”.
It saw them fall behind the rest of the magic circle and provoked unrest among some of their trainee cohorts.
Something tells me that it will not be long before other firms are forced to join them and hold steady.
Dan 
Where it gets really interesting is the city firms paying London NQs more than they pay the Bristol managing and senior associates, who are then asked to supervise those on higher salaries! Whilst, rightly, there should be a London weighting, Bristol is not a cheap city to live in and the gulf is staggering.