In theory, banking is the most highly paid industry to enter as a graduate. Figures from research company High Fliers suggest that graduates who go into investment banking earn an average of £47k ($63k) a year in starting salaries while those who go into law earn £44k. When it comes to compensation, it seems that entry-level bankers beat lawyers hands down.
Or do they?
Banks have been holding junior pay steady: starting salaries for first year analysts in London this year are £50k, exactly the same as last year. However, U.S. law firms have been hiking it. When shorter working hours are factored-in, law starts to look a lot more lucrative than banking.
The latest round of legal pay hikes were started by Milbank, Tweed, Hadley & McCloy LLP, which increased starting salaries for newly qualified lawyers globally to $190k at the start of this month. U.S. law firm Cravath and Swaine then matched this, followed latterly by U.S. law firms Kirkland & Ellis and Akin Gump.
RollonFriday, a UK legal site, says first year lawyers at Kirkland & Ellis are now on $195k (£147k) including bonuses.
Newly qualified lawyers aren't exactly new graduates. It takes two years to qualify as a lawyer in the UK, meaning those 'new' lawyers on $195k are really the equivalent of third year analysts in investment banks. Third year analysts in investment banking divisions (IBD) are on around £113k ($150k) according to recruitment firm Dartmouth Partners, so the lawyers are still better off.
Junior lawyers also work slightly shorter hours than bankers. Law firm Legal Cheek says lawyers at Kirkland & Ellis work, on average, slightly less than 12 hours a day. By comparison, 70 hour weeks - or 14 hour days - are the norm in banking. On this basis, hourly pay for newly qualified lawyers now looks approximately 50% higher than for third year IBD analysts, at around £50 an hour vs. £34 an hour in IBD.
Does this mean you should choose a career law over a career in M&A for the sake of an easier life with higher pay? Maybe. However, law firms' total compensation advantage doesn't last.
As the chart below shows, even the highest paying law firms are trumped by banks' compensation as juniors progress. Eight years into a career in investment banking in London, IBD juniors earn £46k a year more than lawyers at the same level. Of course, banking juniors may still work longer hours than junior lawyers - but U.S. law firms aren't exactly known for offering an easy life either.
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