Shearman & Sterling has announced an increase of 4% in its London associate salaries as the pay gap between City firms and their US rivals closes.

The move, which takes effect from today (1 May), means a newly-qualified solicitor in the New York firm's City base will now get £75,000 a year, up from the £72,000 on offer previously.

A corresponding percentage rise will apply to rates for all associates up to six years' post-qualification experience (PQE).

Taking into account the performance-related banding system for all associates of one year PQE or more, a three-year qualified lawyer at Shearman can now earn up to £104,000 before bonuses. A greater degree of flexibility is built in to the pay of more senior lawyers at the firm.

Although Shearman continues to pay more than the UK's magic circle, the rises announced by the US giant are dwarfed by increases recently unveiled by leading City firms, with Freshfields Bruckhaus Deringer yesterday announcing an increase of 18% in its newly-qualified rate to reach £65,000, up from £55,000 last year.

That move put Freshfields level with rates offered by Allen & Overy and marginally ahead of arch rival Linklaters – which now pays newly-qualified lawyers £64,000 – and Clifford Chance, which pays £63,500. A three-year qualified lawyer at A&O will take home £92,500, with Freshfields offering £90,000 and Linklaters £89,000 before bonuses.

Shearman, which last year agreed a 20% pay-hike for its UK lawyers, is one of several firms, including Weil Gotshal & Manges and White & Case, paying mid-Atlantic rates.

London managing partner Kenneth MacRitchie said: "These increases will maintain our strong position in the market on salaries and are in line with our medium-term strategy for compensation and benefits for our UK lawyers. We wish to sustain the performance-led culture here by offering not only highly competitive base salaries but also potentially market-leading bonuses – and hence total compensation – to those associates who make a strong contribution."

Human resources global co-head Marcus Franks added: "Remuneration is always important but, equally, we recognise that it is neither the only nor, in many cases, the most important factor for those who wish to develop their legal careers."

Is the pay differential between the magic circle and the largest US firms in London becoming insignificant? Would you quit Linklaters to join Shearman? Click here to join the associate pay debate.