In the ultra-competitive world of Big Law firms, the announcement of year-end bonuses is always highly anticipated – it is a reflection of market trends, economic climates and strategic visions, and not just about the money. This year, amid challenging economic conditions, there is high anticipation of bonus scale for associates across the legal industry, particularly within Big Law.

Milbank’s recent decision to match last year’s scale and increase salaries, noteworthy for its lack of a billable hours requirement, sets a precedent in an industry where bonuses are a barometer of market health and a firm’s future prosperity. In a landscape where associate satisfaction aligns closely with incentives, the move signals a robust commitment to long-term investment and a conscious effort to balance out the good years with the challenging ones for their associate talent pool. Where other firms sit is yet to be seen. 

The interesting dynamic here is that for the US giants, these memos are delivered from the US, and they often follow suit. The impact of decisions in large markets like New York are felt in London, regardless of a firm’s US presence. For big US law firms this approach reflects an understanding that the war for talent is often won through compensation. While that is not the only drive for a move, if you are opposite your friend on the same deal and being paid 40% less, the sting is felt.

Compensation systems between London and New York are stark. New York firms, especially in the AM Law 100, often follow a lockstep model and present a relatively transparent compensation structure, which can help associates decide a move based on culture, the practice and other factors in a lateral move decision. London’s approach is more varied and opaque – different firms, even within the same type, pay different salaries – banding systems are more common and compensation can somewhat be negotiated within those. Likewise, the difference in billable hours further complicates this comparison. It is normal for associates based in the New York office to be billing 2,200 hours in the top firms, whereas in London this can range between 1,800 and 2,200 depending on several factors, although bill rates and business development differ culturally between both markets and is an increasing concern for many general counsel.

The cultural approach to discussing compensation is markedly different across the Atlantic. In the US, frank discussions about money and bonuses are commonplace and a knowledge of what you get in return for your work in Big Law is clear. The UK market sometimes shrouds mystery in talks around compensation with some firms in the city reluctant to share compensation details until an offer is made. This lack of transparency in the UK legal sector poses significant challenges in a law firm’s talent acquisition strategy, as potential lateral hires struggle to gauge opportunity values effectively and don’t want to commit to a process to find out their compensation expectations are misaligned at the end. The US has made strides to add to compensation transparency in certain states, with new regulation included to ensure salary rates are clear on a job description, but in the UK no such system exists. 

In cities like London and New York, where the cost of living has skyrocketed, the size and structure of bonuses take on greater significance. For lawyers working extensive hours, the bonus is not just a reward, but a necessary supplement to manage the high costs of urban living in line with long hours in the office and finding some work-life balance. Post-Covid, there is a noticeable shift back to an hours-focused performance evaluation system. Associates, aware of their peers in similar firms sometimes receiving higher compensation for equivalent work, are increasingly vocal about equitable pay. This shift, especially in New York, where industry norms quickly become standards, is something to watch in the wake of Milbank’s announcement.

The ground reality, based on conversations with associates, reflects a mixed bag of expectations and satisfactions. The bonus, for many, is not just about the financial aspect but also about recognition and the firm’s acknowledgment of their hard work and contribution. Bonuses shouldn’t be seen as just an annual reward, but they should be viewed in the wider and longer-term context. During boom times, increases to bonuses were still, to an extent, playing catch up to lows in market activity and the wider cost of living challenges. Partner profits have remained high, even during economic turbulence, and so in a global legal market, talent expects a global, consistent approach to reward that ensures a similar degree of resilience for their compensation.

As the legal industry navigates these intricate dynamics of compensation, the call for greater transparency, especially in a more globalised legal market, becomes louder. For some firms, standard approach to bonus structures on a global scale might be the key to fostering a more equitable and competitive environment, rather than reflect things region by region. Although this can conflict with local market norms, more transparency would nonetheless be welcomed. Firms without a global offering should focus on how they can give other opportunities outside of money, such as work life balance and hours, but again, transparency is key. Milbank’s recent move may be somewhat of a catalyst the industry needs, prompting a revaluation of how big law firms across London and New York reward their most valuable asset – their people.

Nathan Peart is a managing director at legal recruitment firm Major Lindsey & Africa.