Kwasi Kwarteng, caught laughing at the funeral of the pound.
US law firm Akin Gump has introduced a cap on the foreign exchange rate it uses to set the salaries of its London lawyers, to avoid having to pay its newly-qualified solicitors in excess of £200,000 as the value of the pound plummets against the dollar.
The Washington DC headquartered-firm pays its London associates in line with the Cravath scale in the US, which determines that NQs are paid a salary of $215,000. The firm usually converts to sterling by adopting a floating spot rate at the beginning of each quarter, depending on the FX rate at the time. This equated to a NQ salary of £164,000 from April to June (when £1=US$1.3109 at the start of that quarter), rising to £179,000 for the July to September period (£1=US$1.2005), when the pound dipped.
As the pound plunged to a 37-year-low this week, Akin Gump's NQs were set to toast the government's mini-budget with the finest wines available to humanity. On current conversion rates, they stood to pocket a salary of over £200k for the final quarter of the year; almost three times the base salary of the Prime Minister. Or ten times that of some criminal barristers.
But in light of the tanking pound, a source told RollOnFriday that Akin Gump decided to "stop converting" salaries at the "actual FX rate" and has introduced a collar (1.2) and cap (1.5) "that hasn't been seen in years". The insider said the firm made an internal announcement on Monday, just a few days before a new FX rate was expected to apply.
Akin Gump's salary scale works out as follows (based on the 1.2 rate collar):
NQ & 1 PQE: $215,000 (£179,167)
2PQE: $225,000 (£187,500)
3PQE: $250,000 (£208,333)
4PQE: $295,000 (£245,833)
5PQE: $345,000 (£287,500)
6PQE: $370,000 (£308,333)
7PQE: $400,000 (£333,333)
8PQE: $415,000 (£345,833)
Akin Gump is not the only BigLaw US firm to use a collar and cap on FX rates when converting dollar salary into sterling. RollOnFriday understands that Kirkland & Ellis uses a collar rate of 1.25 with a cap of 1.63, adjusted on a monthly basis (or whenever staff are compensated). The collar rate puts Kirkland's NQs on a base salary of £172,000.
Other US firms take a different approach. Vinson & Elkins (which also adopts the Cravath scale) uses an exchange rate which is set in January of each year for the full 12 months of that calendar year. The firm typically calculates the rate using the average of the fourth quarter of the previous year, and does not currently have a cap or collar in place.
Vinson & Elkins (and other US firms in London which use a similar method) will therefore have a big decision to make in the new year - if they continue to adopt a set rate based on the fourth quarter, their UK NQs could be in for a bonanza pay packet in 2023, if the pound continues to be weak against the dollar.
Goodwin Procter is another firm which uses an annual exchange rate which is set at the beginning of the calendar year. It currently pays its UK NQs a base salary of £161,500.
RollOnFriday understands that some other US firms pay their UK associates in GBP without linking to the dollar, including Gibson Dunn (which pays its NQs £161,700) and McDermott Will & Emery.
If you're in the London office of a BigLaw US firm, spill the beans on how your firm calculates salary.
Not sure where this is going if UK/EU clients are paying in £/$....
I can't see that many clients will be happy to swallow a 10% increase in hourly rates to ensure the US NQs can buy Ferraris (or a studio flat in Peckham).
Well this was a blindingly obvious outcome.
Can the other handful of small US outposts with 3 associates and a secretary now stop bleating about how they get paid pure spot, given the same will be happening for them shortly.
Akin Gump - Good if you want to do bond restructuring. Non-entity in everything else.
Vinson & Elkins - See above, without the bond restructuring bit.
No mention of STB where you can choose to have the conversion with no collar or cap. Wonder how long that will stay for given that means STB NQs are on about 193K.
Pay is set at BoE fx rate on the first business day of the year. If during a quarter the fx rate is +/- 5% then it is reset on the next quarter to be the fx rate on the first business day of the quarter. Therefore Oct pay onwards will reflect Oct 3rd fx rate. Currently we're on July 1st 1.2005.
Thanks a lot Kwasi and Truss, you absolute two-hats
I wonder what their contracts say about how the currency conversion is determined and when. Also would the firms do the same in the opposite case of pound doing very well against the dollar and pay in dollars therefore getting lower?
Chris Addison was very good on this week's Bugle. 'He's not even a proper Kwarteng; he's just a Kwasi Kwarteng.'
This is exactly exactly the trickle-down economics that Kwasi and Truss were planning for. Cunning, really.
I'll get out my tiny violin for those poor juniors earning a mere £345k sterling. Try working 7 days a week in the provinces for £55k for a 20 year plus qualified!
If you’re working 7 days a week for £55k at 20PQE then, I hate to tell you, but you’re doing it wrong buddy.
I think we will need to arrange some sort of charity concert to raise funds for these poor NQ's earning a meagre 180k per year.
Yeah, EDavis, you are getting banged.
Seek out recruiter post haste.
A better life is out there, it is not too late for you.
STB pays floating FX 7PQE is getting £30k/month pre-tax. Decent bees and honey, but mass redundancy may occur as utilization has been low for several months.
2022 has been a terrible year for most US firms. Associate costs are increasing exponentially yet revenue is down because PE/finance is simply not as active. In order to drive up revenue and maintain growth, US firms now resort to aggressive headhunting of rainmakers from their competitors, offering eye-watering sum of cash (as much as £8m/year). BUT, every dud they get exposes the firm to severe financial risks. At [*], the new restructuring clowns are dragging the wjolevfirm down.
US doyen - hints? Think I know which firm this is…
Currently conversation salaries are like a box of chocolates cause you never know what your gonna get
AK has imposed a ‘floor’ and a ‘cap’.
A ‘collar’ is something else entirely.
Is it one of the firms mentioned in this thread?
Love the 'Withnail & I' tribute in here. So good. Thanks for that!