The Financial Times recently reported Freshfields Bruckhaus Deringer, an elite magic circle law firm, has paid additional bonuses to its London-based private equity lawyers. Making Freshfields the latest international law firm to move away from its traditional pay structures, to stem the tide of defections to rival US-based law firms. Sources familiar with the matter told the FT that the payments equated to about £50,000 for some mid-ranking lawyers.
The bonuses were sparked by the post-pandemic boom in private equity-backed mergers and acquisitions in the US. Which, in turn, caused a mass exodus of specialist lawyers from the magic circle to lucrative opportunities at US-based firms.
Transatlantic competition for legal private equity talent
However, the competition between European and US firms for talent has long been a trend in London. US firms have rapidly expanded in the City, bringing more competition for talent. The problem for magic circle law firms, like Freshfields, is that American firms are willing to reward new recruits with compensation packages far beyond City norms.
But the move from Freshfields is only the latest in a series of tweaks to bonus structures across London law firms, particularly for those consulting in the private equity space. Allen & Overy and Clifford Chance are two notable outfits who have made changes to how they pay bonuses to their associates working in the City.
The FT article highlights that law firms are making these changes “to introduce flexibility and remain competitive in the busiest areas, with the most in-demand lawyers able to earn far more than peers without the same volume of work”.
Additionally, the FT outlines that the move is being enthusiastically welcomed, with one partner at an international firm in the City stating it was “absolutely bonkers to have a one-size-fits-all approach” due to the differences in revenue generated by different teams.
