By Daniel Hunter

Pay in the UK legal sector remains buoyant despite low UK economic growth, according to Towers Watson’s Legal Salary Report. The report shows that the legal sector is increasingly adopting a performance-based approach to pay rather than the traditional post-qualification experience (PQE) model that rewards employees for the number of years served since qualifying.

The report also shows that the traditional gap between private practice and in-house pay is closing. Base pay within private law firms is still significantly higher but more generous bonus and employee benefits are found in the wider corporate environment, resulting in total rewards often being more competitive for in-house lawyers.

“We are seeing a definite shift away from the old PQE pay model as law firms find that if they want to attract and retain the most valuable employees they have to differentiate their pay structure in order to reward the top talent, rather than simply increasing pay depending on the number of year’s served," Philip Hough, senior consultant in Towers Watson’s Data Services team said.

"Similarly in-house legal teams are driving a lot of this mobility by offering more competitive pay packages in order to tempt experienced private practice lawyers over to the corporate sector where they can also offer greater work-life balance. In some instances we are seeing similar base salaries offered by both, but when bonus and benefit packages are included, in-house total reward packages can be higher. This is a new development and indicates that competition has increased for experienced lawyers in the last few years.”

The traditional gap between in-house and private practice starting salaries remains for newly qualified lawyers and trainees. Median pay for newly qualified in-house lawyers ranges from £44,000 to £47,500 with limited additional bonus and benefits. Private Practice firms also restrict bonus and benefit packages for junior lawyers but salaries average £60,000; over a third higher for newly qualified lawyers.

“Starting salaries for newly qualified lawyers have remained strong in recent years and are now regularly hitting £60,000 at medium and small-sized London law firms," said Hough.

"Outside of London the rates are much lower. Affordability and cost control are still frequently used terms among the law firms so we do not expect these rates to increase in the short term.”

Lawyers with several years’ experience quickly become more valuable across the market especially within in-house legal departments which are willing to compete with, and even exceed, salaries offered in private practice. A typical lawyer at a mid-sized London law firm having qualified in 2007 could expect a base salary of around £86,000 with total compensation including bonus to increase to £88,000. The equivalent in-house lawyer at a financial services company could expect base pay of £83,500 with total compensation reaching £97,500, nearly 11 per cent higher.

The amount of time taken to reach partnership at many law firms has been increasing in recent years and has led to a flattening of pay for lawyers below partnership level, typically around eight years after qualifying.

“It used to be considered that seven or eight years of experience would see many lawyers through to partnership, but now this career curve is lengthening," Hough said.

"As a result we’re seeing pay level-out once lawyers reach eight years’ experience with one or two per cent annual increases for the following few years. This would be a sharp slowdown in the rate of pay rises they would have become accustomed to in prior years.

“The 2013 review season is upon us and we await to see if there will be any movement in the ranges of pay by level of seniority, the extent to which more performance related structures will continue to be implemented among firms, and whether bonus payments will again be focused on the few individuals that have met their billing and hours targets.”

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