Sullivan & Cromwell looks set to spark a US pay war after this week unveiling a one-off 'special bonus' of up to $20,000 (£11,210) for its associates.

The bonuses will be awarded on 21 October and see the New York leader offer first-year associates a $10,000 (£5,600) one-off bonus, rising to $20,000 (£11,210) for senior associates.

The payment is in addition to the traditional end-of-year bonus, usually starting at $17,500 (£9,811), and represents around 7.5% of an associates' annual base salary, which starts at $125,000 (£70,080).

The highly symbolic move sets a new benchmark for the influential New York legal market and comes amid mounting expectations that US firms are gearing up this year for substantial pay increases in response to the reviving US economy.

The New York legal market has seen pay rates on hold since 2001, while end-of-year bonuses have tumbled from the six-figure awards handed out in the boom year of 2000.

Any major increases will be closely watched by London firms since they are likely to be used in American firm's City branches, further increasing pressure for the best UK lawyers.

One senior Sullivan partner told Legal Week: "There has not been an increase in compensation for a few years now, but seeing as the work has picked up recently and our associates have been working hard, we thought they deserved it. We are still deciding on 2005′s salary and bonuses rate but it is more likely that the bonuses will go up rather than the base rate."

The firm's stance is expected to put pressure on Manhattan rivals such as Cravath Swaine & Moore and Davis Polk & Wardwell to follow Sullivan's example.