As the post-recession associate lateral market in the City seems to be heating up, competition for the best young legal talent is growing. And this is duly reflected in this year's associate pay figures.

Magic circle salaries have gone up across the board, with Clifford Chance upping pay by as much as 7.4%. Allen & Overy and Linklaters, meanwhile, have increased some salaries by 5%. 

Freshfields Bruckhaus Deringer also substantially hiked pay for its junior lawyers, topping the charts with salaries of up to £135,000 for associates in its top band – equivalent to roughly six years' experience. However, the firm moved away from the traditional associate lockstep in 2012, rendering a direct comparison with its competitors impossible.

Although Slaughter and May revealed more modest pay rises, the trend among London's legal elite suggests a return to the pre-crisis days, when annual increases were a matter of course. It also hints at a strong set of financial results from the top firms.

According to Freshfields head of graduate recruitment Elizabeth Cope, the increased rates are viewed as an investment and are not a "knee-jerk reaction" to the salaries paid by the firm's competitors. 

Slaughters graduate recruitment partner Robert Byk says that, as the market for lateral hires has opened up, "a salary increase is one of the tactics to ensure the brightest and the best within firms do not go elsewhere". As Byk acknowledges, competition for talent – from US firms in particular – has never been fiercer. Most New York firms pay their London-based associates far more than their domestic rivals, with salaries converted directly from those paid on the other side of the Atlantic.associate-pay-2

Even firms such as White & Case and Shearman & Sterling, which benchmark City rates closer to the magic circle, are at an advantage.

A source at White & Case said that its pay tends to be around 25%-30% higher than at magic circle firms. Shearman's rates mirror this assertion with associates with three and a half years' PQE earning up to £114,000, a 5% uplift on 2013-14. Byk accepts that it would be "silly not to keep an eye on" what US firms were doing, but adds that topline salaries are just one of several considerations. 

Bingham McCutchen London managing partner James Roome, whose firm shook the market in 2010 when it became the first to offer £100,000 salaries for NQs, agrees that pay is not the only factor for lawyers, with "firm culture, practice areas and client contact" also vital. 

"US firms have always looked to attract the best from the UK talent pool," adds Roome.associate-pay-3

As one recruitment professional tells Legal Week, "the cat is out of the bag" on the myth that associates at the lesser-paying UK firms are able to sustain a better work-life balance than their better paid US contemporaries. Associates moving to American firms often realise they are getting better pay for the same workload.

Growth and prospects may also be better at some US outfits. "The story of American firms in London at the moment is much more interesting than just the money," claims Freddie Lawson, an associate director at Fox Rodney Search. This sentiment is felt elsewhere, with one managing partner commenting that "US firms are the ones to watch in the next few years".

This year's rises in associate pay could well mean the start of a new salary arms race, with the magic circle firms keen to assert their positions at the top. But they should be wary; US firms are fiercely expanding their London offices and, with legal recruitment as competitive as ever, higher salaries and a globally recognised name may be the key to enticing the next generation of star partners. 

Freshfields: * Foundation level categorised as NQ/one-year PQE, ** Level 1 – roughly equivalent to two to four years' PQE, *** Level 2 – roughly equivalent to four years' plus PQE