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Salary Wars: FX Rates Creating Large Discrepancies Among “Milbank Scale” Law Firms in London

It’s no secret that US law firms are famous for handsomely remunerating their associates - this is a huge part of the ongoing draw for associates away from comparatively low paying UK law firms today. Looking plainly at the figures, it certainly appears on first glance that US law firms are practically falling over themselves to get ‘one up on each other’ in a bid to attract the most talented associates. Historically, Cravath have been the first firm to up their US and subsequently UK salaries to the revered ‘Cravath Scale’ which prompts the rest to follow suit. However, this summer it was Milbank, Tweed Hadley & McCloy who set the wheels in motion by raising UK NQ (or first year) salaries to an eye-watering $190,000, closely followed by a host of other firms including Akin Gump, Kirkland & Ellis, Cadwalader, Skadden Arps, and Latham & Watkins, amongst others. But in and amongst the sensationalist headlines and skyrocketing figures that characterise the huge pay war traditionally kicked off by Cravath, it is not always clear which US law firm is giving you the biggest financial reward. This is principally down to the surprisingly large discrepancies between the Foreign Exchange ( FX rates ) rates applied by US firms when paying their UK associates. Headlines on popular legal websites explain that US firms are ‘pegging their payments to the dollar.’ This means that firms will set a salary for their associates in the US and convert those salaries into the equivalent amount in GBP sterling using a particular FX rate. Crucially, not all US law firms use the same FX rate. And importantly, some firms do not use FX rates at all - rather, they cherry pick salary figures as opposed to aligning salaries to a set scale. As a natural result, UK associates whose firms choose to use more favourable FX rates will be receiving a better return on the dollar than other firms. As associates progress further through their careers and the numbers at stake get higher, these slight discrepancies between FX rates make the difference between firm remuneration even more stark. US firms and associates alike are aware of the importance of a good FX rate. Indeed, Sullivan & Cromwell improved their rate this year, in response to associate feedback and some departures. Their chosen rate is now 1.36. This means that with an NQ base salary of $190,000 in the US, their UK colleagues from across the pond are paid £139,706, a good £15,000 higher than their contemporaries at Skadden, whose choice of an FX rate of 1.54 amounts to £124,183 for NQs; even though their US associates are also paid $190,000. Even in these early class stages, we can see that the choice of FX rate can lead to considerable discrepancies. Within these same two firms, 4 year qualified associates at Sullivan & Cromwell are paid £187,500, and 4th years at Skadden paid £166,667. The gap between these firms has been widened to £20,000 between them. Within the US legal market, both Akin Gump and Kirkland & Ellis have the best FX rates available. They use the ‘spot rate’ - the amount that the UK would pay for US currency today rather than a pre-selected exchange rate. Based on the current spot rate of FX 1.31, a 4 PQE associate at these firms would be paid £194,656, dwarfing their equally qualified colleagues at Sullivan & Cromwell. To prevent unwitting fluctuation, Kirkland go so far as to set a limit of 1.25 and 1.63 should the daily spot rate polarise outside these ranges. Further, Latham & Watkins have selected a rate of 1.48, meaning that an NQ would earn £128,378, and a 4 PQE associate £172,297. As we are beginning to see, it is not as simple as seeing these pay rises ‘pegging payments to the dollar’ as universally equal; the variation between the firms is surprisingly high. As we have seen, many of the top US firms in London claim to be paying the same associate salaries across the board, but in practice, when you factor in the various FX rates, this is far from accurate. Whether this will become an issue in the near future remains to be seen, but some associates at Latham London are already questioning why their counterparts at Kirkland London are earning up to £25,000+ more per annum at certain levels. Third Way Legal have carried out extensive remuneration mapping across London private practice firms recently. If you wish to take a more in-depth look at our findings please sign up to and log-in to our salary aggregator. Alternatively, reach out to Third Way's private practice recruiter, Hamish Drake on or 02036916036.
Added by Hamish Drake on 29/10/2018