Merit the key as firms get tough on pay: performance focus replaces automatic rise

THE nation’s top law firms are more optimistic but are still keeping a lid on remuneration.

THE nation’s top law firms are more optimistic than they’ve been since the global financial crisis but are still keeping a lid on remuneration.

Standout performers were handed pay rises of up to 12 per cent this year but law firms have shifted dramatically away from handing automatic increases to the majority of fee-earners.

Mahlab Recruitment’s annual salary survey finds many lawyers who were expecting compensatory increases after weathering the downturn were disappointed. The majority of lawyers in private firms, 62 per cent, said they were not satisfied with the outcome of their salary review. Almost half of them, or 47 per cent, considered leaving their role.

On average, lawyers in private practice received an average pay rise of 3.8 per cent this year, up slightly from last year’s 3.7 per cent. While law firms lifted salary and bonus freezes, only 44 per cent of law firms increased their salary bands, down from a high of 90 per cent in 2011.

GRAPHIC: What solicitors earn

Mahlab’s Victorian managing director Katherine Sampson said major and mid-tier law firms were increasingly moving away from awarding annual pay rises based on years of service and were instead delivering increases on merit. “What we’ve noticed quite distinctly this year is many firms are saying, ‘we’re not going to be increasing the bands any more and in fact we may abandon the whole band system’,” she said. “So instead of getting a reward for another year of service, you’ll be rewarded on your performance.”

The survey reveals law firms are once again offering lucra­tive sign-on bonuses to lawyers in busy areas, particularly banking and finance, corporate, employment, construction and property.

Ms Sampson said this was partly to attract good candidates where positions could not be filled internally, but also because Australian lawyers were feeling the tug from British firms: “London has come back in and is now competing directly for talent.”

Some junior lawyers were being handed sign-on bonuses of about $5000 to join a firm locally, while partners could command up to $200,000, she said. Salaries are expected to continue to rise but those hoping for a radical jump next year are likely to be disappointed. Ms Sampson said she believed average increases next year were unlikely to be higher than 4 per cent or 4.5 per cent.

The report finds that challenges remain for partners, who continue to face pressure to maintain profitability. It said there had been a decline in equity partners as firms tried to improve per-partner profitability and a rise in performance-based partnerships.

Senior associates are now finding higher hurdles to partnership with less certainty of success, but the report noted a silver lining for those who made it to the top. “While it is now more difficult to make partner, those that do succeed in securing the appointment at a major international firm will have far more expansive car­eer options than their predecessors, most notably beyond Australia to Asia,” it says.

In-house lawyers have been handed conservative salary increases of 3.3 per cent on average, as companies continue to seek to lift profitability by trimming costs.

This is up on last year’s 2.8 per cent, but the report says this trend is set to continue for at least the next six to 12 months, amid soft market conditions.

Ms Sampson predicted that in-house legal teams would grow as companies looked to save money on their external legal spending. However, the report found that only 31 per cent of in-house lawyers were satisfied with their caree­r-progression opportunities.

Fewer bonuses were paid to in-house lawyers this year, but Ms Sampson said some general counsel earned bonuses of up to 80 per cent. Contract lawyers are potentially undercutting the work of permanent in-house teams, with the report finding contractors ­offered cost-effective solu­tions to short-term legal resourcing shortages.

The Australian can reveal that Mahlab is set to bolster its annual salary surveys with regular roundtable talks with key influencers at law firms and companies. Ms Sampson said this would give more depth to Mahlab’s annual salary reviews and provide a continuum of what was happening.