One in three London law firms is considering ripping up its salary structure for junior lawyers and moving to a bonus-driven system traditionally used by investment banks, research out today reveals.

The changes could see top-performing solicitors in big UK law firms taking home annual bonuses worth 25 per cent or more of salary, compared with the current norm of 10 per cent of basic pay at most.

For top-performing junior lawyers in their mid-twenties in large UK-owned City law firms, total pay packages could jump from about £80,000 to more than £100,000. More senior lawyers aged only 30 could earn £200,000 or more, compared with current top rates of about £150,000.

A survey of law firms’ pay practices by Deloitte & Touche, the accountancy firm, found that out of half of UK firms operating an old-style bonus system, two thirds were considering performance-based pay.

Partners in City firms are battling to retain top-performing young lawyers in the face of aggressive poaching by bonus-fuelled banks and rapidly expanding London arms of US law firms, which offer $160,000 (£82,000) base salaries.

Bill Cohen, a partner in Deloitte, said: “The purpose for bonus is threefold: retention, motivation and recruitment. Motivation is the key one to try and incentivise people to get the best out of them for the profitability of the firm. Bonuses will play a greater role going forward.”

The traditional way of setting bonuses for lawyers is for partners simply to set aside a portion of their profits each year and carve it into equal amounts across the firm. This means payouts even for the most senior associates rarely exceeding £10,000, while most lawyers take home a few thousand pounds extra.

SJ Berwin is leading the bonus revolution, having introduced in November a scheme offering potential bonuses worth 75 per cent of salary, but only to those who bill 2,500 chargeable hours per year and reach other targets.

Last year, Simpson Thacher Bartlett, one of Wall Street’s largest law firms, raised its base salary for newly qualified lawyers to $160,000. That started a wave of pay rises across US law firms. These are bound to put pressure on the City’s largest international law firms, Clifford Chance, Allen & Overy, Linklaters, Freshfields Bruckhaus Deringer, and Lovells, all of which have a large US presence and will have to compete at local rates.

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