Britain’s largest international law firms are struggling to attract and retain staff in the US after the crash in the value of sterling compounded their lack of competitiveness in the US, the world’s most profitable legal market.
The group of “magic circle” law firms that work on the City of London’s biggest deals have historically struggled to match their American competitors on pay due to lower overall profitability and more restrictive remuneration models that prevented outsized salaries for star partners.
For instance, Freshfields’ equity partners took home more than £2m each on average for the year ended April 30, the most of the magic circle. However, its profitability remains well below that of the top US law firms, where partners’ average take-home profits exceed $7m.
Despite such disparities, Freshfields, Clifford Chance and Allen & Overy have succeeded in poaching partners from US rivals, after loosening old pay structures and spending millions on their expansion in America. However, lawyers say the widening gulf between the pound and the dollar was further harming London-based firms’ ability to hire top partners and could soon trigger defections.
Currency movements are also creating recruitment issues at both the senior and junior end, with US law firms paying far greater sums to associates than salaries on offer at UK-based firms.