Does anyone know how us firms do their conversions from dollar to pound given that USD/GBP is at 0.745. Therefore, 225 dollars is now sub 169 pounds. Firms that used to top the market now do not ie Kirkland now pays almost 7k pounds below
White & Case.
Do you think these US firms, who pay $ 225,000, will detach from US-linked pay, especially given that GS FX puts the rate to drop yet further, so it could end up being around $ 164, which is $16,000 below the top of the market ie GD, PW, QE etc ?
Different US firms have different exchange rate policies - some automatically update them on an annual basis at a set date, some have a floating exchange rate, while others aim to pay London associates roughly the same as US associates but have any raises/cuts in London subjected to individualized reviews. The difference in these policies is what explains the NQ salary differences between the firms paying in the 170,000 - 180,000 pounds range.
As to your second question, as to what the US firms will do in light of the trajectories in FX markets: if the dollar's value continues to consistently drop and reaches levels as low as some projections, this might indeed prompt some firms to adjust London salaries downwards. In general, US firms are quite insistent on not paying in any international office more than they do in US offices, simply because the US work tends to be more profitable than the international one.
That said, I think firms would much prefer to avoid cutting salaries. Firstly, this is because this is never well-received by employees who have grown accustomed to existing salary levels and planned finances on the assumption that those will stay constant. Secondly, this is because of market pressures of MC firms raising NQ salaries to 150,000 pounds, which would put them close to a Cravath pay scale adjusted to current projections and thus undermine the financial incentives to move to a US firm. Thirdly, this is because most US firms are in a position to continue affording to pay them. The last year has been exceptional for US law firms, with many enjoying double-digit growth in both revenue and profitability. The most profitable 3 US firms in London (Kirkland, Quinn Emanuel, and
Davis Polk) have reached average PEP figures in the $7.8-9.2 million range. Finally, although dealmaking volumes were impacted by developing trade wars, according to the legal press, the first quarter of the year has not been nearly as bad as expected for big law firms.
All this is to say, my personal expectation is that there will not be significant salary cuts across the board. I think it is more likely that US firms will wait to take into account the exchange rate factor by not further raising salaries in London, despite a rise in the US. According to past market trends, a $10,000-15,000 salary hike could be expected in the US offices in the next 12 months. If the projected trajectories in FX markets hold, US firms would then probably decline to make any further raises in London.
