Allen & Overy has given huge pay rises to associates in a gamechanger which looks set to force elite firms to pay lawyers more.

A&O watched and waited as Linklaters, Slaughter and May, Clifford Chance, and Freshfields all announced their rises. Then on Friday it unveiled salary increases of up to £22,000, leapfrogging the Magic Circle competition:

£k	State of pay	NQ	1PQE	2PQE	3PQE	Total post-qualification earning over four years**
A&O (old pay)	Raised	(66.5) 78.5	(72.5) 92	(82.5) 104.5	(93.5) 115	390
Clifford Chance	Raised	70	75.5	88	98.5	332
Freshfields*	Frozen	70	75	90.6	96.8	332
Linklaters	Raised	68.5	74	85.6	95.5	324
Slaughters	Raised	70	75.5	87	96.5	329

*NQs and 1PQEs fall within Freshfields' Career Milestones Foundation band which pays £67,500 to £77,500. 2PQEs and 3PQEs fall within CM1 which pays £87,500 to £100,000  
**excluding bonuses

Trainee salaries have also been nudged up, by £2,000, but the associate pay rises are the headline grabbers with 2PQEs receiving a massive 27% increase. Lawyers are in for an extra-special Summer since the August hikes are being backdated to May.

Time for an upgrade

Increases are so fulsome because the firm has decided that instead of paying bonuses every year, they will be folded into the base salary. Bonuses will still be available, but for "exceptional" contributions only.

A&O said an internal review revealed that associates would value a bigger salary more than an annual bonus and, heartwarmingly, A&O's lawyers are so consistently excellent that there's no need to wait and see whether they deserve one. Global Managing Partner Wim Dejonghe said that by adding the "standard" bonus to base salaries, "we provide our associates with more certainty as to their pay", and "more consistent recognition for the work they do every day". It's also very useful for anyone applying for a mortgage, as pointed out by impressed lawyers on the discussion board.

The new base pay won't be viewed by anyone as a salary-plus-most-of-a-bonus, of course. These figures constitute the new normal. Law firms always bleat that salaries may look low but can be made up by AMAZING bonuses. They may, they may not. The real point is that associates live on their salaries and not their bonuses. You might upgrade your car, go on a flash holiday etc. if you have a good year, but it doesn't educate your kids or inform your choice of house. A&O appears to have fundamentally understood this and done something about it. And so now A&O 3PQEs will receive £19,500 more than their peers at Linklaters. Every other firm will curse it. They will surely be forced to follow suit, as when legacy SJB and then Clifford Chance upped associate salaries enormously in 1998. 

The pay rises also represent a significant trespass by a UK firm into US territory. The Magic Circle has previously shied away from engaging in a pay arms race with US firms, steadfastly refusing to pay lawyers tens of thousands more to match them, arguing that the MC constitutes an unrivalled brand with the stability of long-term career prospects. But, as Matthew pointed out, that's changed. US firms have either caught up or are close to doing so on all fronts - plus they pay a shedload more.

Or did. A&O's new salaries may not be at Debevoise & Plimpton levels (where 3PQEs are on £123,500), and its NQ salary trails, but, as the pay table reveals, at other junior levels it's suddenly there or there abouts with a slew of US firms. From August, a 3PQE at Allen & Overy will be on a higher salary than contemporaries at big-spenders like Weil, Shearman and Skadden. That will make an impression at recruitment fairs and amongst laterals A&O wants to target.

With UK firms forced to play catch-up and US firms keen to claw back their lead, things are about to get spenny.