Salary & Market Advice
Private Practice in 2014 - 2015
The pressures on all law firms to achieve budget naturally affects partner satisfaction, promotion and retention. This has been particularly evident in the global firms, where a falling Australian Dollar (AUD) and economic conditions in Australia make for tougher times than when these alliances were formed.
Some partners expressed frustration that decisions are taken by faceless, offshore committees who regard the Australian component of the merged firm as a drag on profitability and something of a disappointment after the heady days of the merger, when a high AUD prevailed and the mining boom seemed endless.
Partners with practices continue to move. The Sydney and Melbourne markets have been particularly active in this area.
Departures continue from major firms (both global and local) particularly in corporate advisory and usually to slightly smaller, more nimble firms. Finance partners have also been on the move, citing inflexible overseas control as the main reason for the change. Acquisitive firms are open to partners who offer synergies with their current practice and, of particular interest, particularly for the mid sized firms and large independent firms, has been government practices, although all firms have shown interest in partners with practices in infrastructure and construction projects. As a rule partners with portable practices above $1m remain in high demand across the market no matter what their specialisation. Mid sized firms remain the chief beneficiaries of most partner movement.
While remuneration can be a driver it is not the only reason for moving. Common reasons for moves this year included unhappiness with the influence of overseas offices, lack of professional recognition and support, non-alignment with management values, and the need for a business model more compatible with the partner’s and their clients’ needs. There has also been an interesting trend of partners returning to their former firms.
While partners on the move usually take a client base with them, this year corporate clients, particularly global entities, were increasingly conscious of the value of a recognised brand as well as an individual’s brand. The result is that the former firm may not lose all work from a key client when partners move.
Partner retention is highly variable across the type, size and culture of the firm. Those that remain loyal to the larger, global firms tend to accept that life as a partner is different now, with less active involvement in decision-making. Some feel relieved that others are now taking the mantle of leadership; others yearn for the old days of knowing every fellow partner and collective decision making.
While partners with a sizeable practice can take their pick of welcoming firms, those with institutional clients and those tied to panel appointments face a much harder battle and are, in effect, ‘retained’ by their current firm for lack of opportunity elsewhere.
Some notable larger firms have seen a significant drop in partner profitability in the last 12 months. Whereas three years ago a full equity partner at such a firm could comfortably expect an income of $1.2m and upwards (sometimes significantly upwards), some firms have seen this dive to $750,000 to $800,000 with little prospect of reversion.
As always there are stand-outs in the major firm category, with revenue and profits out-performing their peers. These tend to enjoy superior management, a single-mindedness about costcutting and tough decisions on under-performers and a ruthless pursuit of lucrative new clients and deals.
Partners in mid sized firms earning circa $1.0m in recent years have tended to hold their income at similar levels. Lesser performers have seen their income fall by up to 25%.
Small firms with a clear service offering to the market which differentiates them are growing steadily, although partner income is still lower than the level these partners enjoyed at their former, traditional firms.
Private Practice Lawyers
2014/15 was an eventful year for private law firms. Geography, firm composition, culture and leadership and the economic climate all served to differentiate firms and affect their ability to attract, motivate and retain top talent.
Many major law firms, especially those allied to an overseas brand, are under more pressure than ever to improve partner profitability in Australia as the
Australian Dollar falls and business activity remained subdued. Cost cutting (including some redundancies and even closure of offices), de-leveraging and pressure to exceed a high budget have all impacted satisfaction at these firms, with lawyers of all levels as well as marketing and human resources staff affected.
Despite the economic deterrents to establishing in Australia, 2014/15 has seen a number of international firms set up small offices chiefly in Sydney and Perth and often staffed with an anchor partner brought from overseas assisted by local hires. Many of these firms offer specialised services in, for example, infrastructure, insurance, maritime, employment and litigation.
Most interestingly, global accounting firms are also re-emerging to take a share of the legal services market.
Smaller firms offering bespoke services such as a select range of expertise at a premium level (and sometimes at a premium price), have benefitted from the changes in the larger firms as partners and senior associates select their offering for its flexibility. These firms keep a low profile and often retain clients and staff through innovative employment practices, specialist expertise and excellent quality work.
Several so-called ‘NewLaw’ firms have sprouted this year, responding to partners’ desire for more autonomy, flexible fee regimes and better work/life balance than they saw at their (usually) larger former homes. Many remunerate their lawyers (including principals) based on a percentage of individual billings. These alternative providers are meeting client needs for easy to access, personal and cost effective services. In many instances, clients deal with a senior lawyer, there is no leveraging of junior teams and there is flexibility in fee constructs. These firms rely on technology to deliver their services and lawyers reportedly enjoy more control over the work they do, and can collaborate with others in the group to win work. Employment prospects for lawyers at all levels in this segment are positive.
Traditional law firms are responding with a range of offerings. This year we have witnessed firms following the footsteps of some of the UK law firms in setting up their own contract service centres staffed by their own lawyers and contractors.
As firms evolve, their legal workforce is changing. Hiring in law firms is increasingly spread across permanent staff, fixed term and contract staff to enable firms to ‘flex’ to meet constant change.
Gains were made in Sydney and Melbourne, where 80% of the larger and 60% of mid sized firms renewed their hiring activity at mid level solicitor and senior associate level. This reflects a lift in business activity in these centres as well as a gap in staffing occasioned by the GFC, when few trainees were employed. Many firms are confident of increased hiring and further steady market improvement.
Some 24% of firms have also seen a number of staff at these levels depart for overseas (where some markets are again rising) and in house opportunities (also exhibiting strong demand) with lifestyle choices dictating other departures: lawyers taking a ‘step back’ to a less demanding role or pursuing part time arrangements with other employers.
In contrast to Melbourne and Sydney, Mahlab has observed a 60% slowing in demand for lawyers in Perth and Brisbane, as the mining boom peters out and law firms tighten their belts. Adelaide has been stable.
The independent Australian firms in the major and mid sized market have enjoyed a solid year. Some have netted partners and staff disgruntled with the global construct and looking to recreate the reason they joined a partnership in the first place: a common goal, control over one’s own destiny and autonomy. They have attracted new clients seeking the personal touch of an Australian partner, on the ground, in their city, sometimes at a lower price than their global competitors.
The mid tiers continue to grow by hiring partners with practices and lawyers who believe these firms will give them the best prospects for advancement.
Remuneration at the mid tiers remains competitive and there is a perception that they offer greater work/ life balance.
Areas of demand for lawyers at solicitor and senior associate level are M&A, banking and finance, construction, projects and property.
At the entry level of the profession, employment prospects for graduates are bleak. With even more law schools coming on stream in 2015 the number of law students continues to increase as firms employ fewer trainees.
A prior career or qualifications outside law in a highly marketable field (such as construction) places selected Juris Doctor graduates in a stronger position, but many graduates are turning to fields outside legal practice to make their career start.
The good news for graduates and junior lawyers is that there is an expectation among employers that business activity will increase in the coming year. This will result in more opportunities for junior and mid-level lawyers in the top and mid tiers, but the supply of junior lawyers will continue to exceed demand for some years.
A number of lawyers indicated dissatisfaction with their recent salary reviews. This combined with the long work hours in their current roles has led to the decision to seek an alternative career move in the coming year.
Across the board in private practice, the hurdles to achieve partnership (or even to be considered as ‘partner material’) have been set higher. Some firms have introduced new promotion opportunities along the way to inspire and retain star performers. Unfortunately lawyers report that this is often more discouraging than motivating. They see the path to partnership as very long and very rocky. Many choose an alternative career path in-house, in government law or outside the law altogether.
Other retention strategies have come to the fore, chiefly better organised, concerted and meaningful efforts to retain part-time talent, including partners, and to instill a culture of genuine workplace flexibility in what is still an essentially conservative profession.
Lawyers report higher hourly rates, higher budgets, retention of work by partners and only modest salary increases, with bonuses used more and more to reward high performers who have exceeded budget. Often the bonus is discretionary.
Employee remuneration has increased by 3 to 5% in the major centres, with Perth, Brisbane and Adelaide seeing CPI increases only. The national average increase is 3.4% (in contrast to last year’s 3.8%), with bands moving only marginally (2.5%), if at all. This continues the downward trend on salary band movement (last year 44% of firms increased their bands, down from 90% in 2011).
Bonuses are similar to last year’s, with 5 to 10% paid to good performers and up to 20% for exceptional performers. Sign on bonuses are once again rare, having only briefly re-appeared in the last financial year.
Lawyers in busy banking and finance, infrastructure and corporate M&A practices tend to be rewarded slightly more than their peers in less lucrative areas and benefit more at bonus time, having only briefly re-appeared in the last financial year.
Many lawyers have reported they have not been satisfied with their reviews given they are working harder with limited support. While lawyers have received salary increases, bonuses have been tightly controlled. Lawyers who have not been working to capacity due to a lack of flow in their sections have been particularly affected, receiving an increase at the bottom of the range (if at all) and no bonus.
Corporate in 2014 - 2015
The year saw an improved job market and higher salaries for corporate lawyers and company secretaries with most receiving increases and bonuses, albeit modest.
Corporate lawyers and company secretaries all reported that the business environment remains cautious, cost conscious and competitive. Teams are working harder and the scope of the legal and company secretarial functions is widening. Changes to risk and compliance functions are placing additional pressure on general counsel, company secretaries and their respective teams to do more with less. General counsel and company secretaries in smaller companies are not exempt from these pressures and indicated that while they may have a small team, management demands the same output as their larger counterparts, particularly with respect to compliance.
General counsel are responding to management demands to control costs by pressing for lower external legal fees. They are also looking at a variety of ways to deliver legal services to their companies.
This year, 80% of general counsel reported that their legal teams are under-resourced and require additional staff. While some legal teams have grown, many find it difficult to obtain budget for the extra staff needed to deal with skills deficiencies or to decrease pressure on an overworked team.
A number of general counsel reported that this lack of resources may expose the company to unacceptable levels of risk. In addition to anything their company can offer to increase headcount, many general counsel deal with limited resources by negotiating the best possible fees and calling on favours from friendly firms. General counsel have been relentless in finding ways to deliver services more efficiently. Alternative ways of providing legal services using a variety of networks and new forms of technology are now also key considerations for in-house legal teams.
Although permanent hire is the preferred way of dealing with resourcing issues, fixed-term hires are popular, followed by secondments, and in some instances, offshoring of work is also an option. Some general counsel will not consider outsourcing legal work because they have concerns about the quality of work and risk. Others are open to offshoring for low value, highly commoditised work.
Hiring activity for corporate lawyers has increased. General counsel are cautiously adding to their teams as a means of controlling external legal costs.
Much of the hiring activity this year has been in the area of fast moving consumer goods, financial services, property, health care and infrastructure. Governance roles have also increased, as have compliance roles in an increasingly regulated environment.
While there were more in-house roles this year than last, the market for jobs has remained very competitive. Lawyers with 3–8 years’ experience are most in demand, followed by lawyers with 8–12 years’ experience. An overwhelming number of lawyers seeking corporate roles indicated that job searching continues to take significant time, typically 3–9 months.
The availability of general counsel roles has remained limited, reflecting the lack of mobility of senior candidates who cannot easily replicate their positions or packages in the current competitive market. Those who have found general counsel roles in the last 12 months indicated their job search had taken between 6–24 months.
Many unemployed general counsel accepted interim contract and consulting roles to keep their knowledge, skills and networks current while they searched. A larger number of general counsel than previous years indicated they would relocate or commute to locations outside their home state if it meant securing a quality role.
Contracts remain popular in the in-house market and are being accepted by more job-seeking lawyers and by employers who value flexibility for workforce planning. The majority of contract roles called for candidates with 6–10 years’ post admission experience and were typically for a period of 6–12 months. Lawyers favoured contracts to gain initial in-house experience, to obtain experience in a new industry or simply because of the flexibility they offered. However, 65% of lawyers would prefer not to work on a contract basis and only did so because they were unable to secure a permanent role in this highly competitive environment.
General counsel must deal with multiple challenges: needing to do more with less, the growing regulatory landscape, and motivating and developing their team in an environment where financial rewards and promotions can be elusive.
In legal teams, 85% of general counsel said their teams were more senior and generally flatter in nature than they were five years ago. Advancement up the pyramid is viewed as a thing of the past and is creating challenges for general counsel in keeping valued team members engaged. Retention strategies included work variety, secondments internally and externally, overseas postings and rearrangement of clients and work mix.
International secondments are particularly attractive strategies offering the stimulation of working overseas and gaining exposure to overseas business, new cultures and new ways of doing things. The most common overseas destinations were Asia (Singapore, Hong Kong and China), Europe (UK) and the US (Texas, Los Angeles and NYC). General counsel who encouraged their lawyers to try something new are more likely to retain them for the company as a whole, if not for their own team.
Other retention strategies included development opportunities such as paid study, participating in internal management training courses, flexible work arrangements and working remotely.
Corporate lawyers are working longer hours and experiencing higher levels of stress. As well as increasing demands on and changes in the role of legal counsel, this reflects the expectation to do more with less in a challenging business climate.
Work/life balance continues to be a key factor for in-house lawyers, with 95% citing it as one of the reasons they favoured working in-house over private practice. 76% of lawyers felt they had a better work/life balance than their private practice peers, although nearly all were still seeking a better balance. Flexible work hours, the opportunity to buy additional leave and the option to work from home were highly favoured benefits for most corporate lawyers
Remuneration for corporate lawyers has shown modest growth, with average increases around 3% nationally. While bonuses are offered for exceptional performance, these have been generally conservative.
Over 70% of bonuses are calculated on a mix of personal (assessed on meeting KPIs, feedback from the business and project work) and company performance, and of this group, bonuses were paid in 69% of cases. Where bonuses were based on company performance, only 55% of lawyers attained a bonus reflecting the weak business conditions impacting some industries.
General counsel reported fewer increases in remuneration, with some reporting no increase in remuneration for at least two years. The majority of general counsel who are on the Executive Leadership Team (ELT) reported earning one of the lowest packages of that senior group.
Most general counsel feel their value is not being adequately recognised by employers because their contribution cannot be measured in a tangible way. Many are educating their internal clients about cost by showing where the legal budget is spent, and in some instances, making the business responsible for paying external legal fees. Notional billing and timesheets are also used by some general counsel to demonstrate value and manage workflow.
Company secretaries reported they were working under cost constraints, including headcount restrictions, and have found that over the years their roles and functions have widened in scope, largely due to the increased focus on risk and compliance.
The overwhelming majority of company secretaries cited a lack of clarity about who has responsibility for compliance and risk.
Demand for company secretaries has been relatively subdued this year. Overload work has been handled by company secretariats working much harder, utilising technology and streamlining processes for increased efficiency.
While the company secretarial market is relatively static at the senior level, most recruitment activity was for assistant company secretaries with 5–10 years’ experience.
Contracts were also popular in the company secretarial area and were mainly used to cover leave.
Company secretaries reported limited opportunities for career progression within their organisations and a very tight job market at the senior company secretarial level. This reflects the fact that there are fewer opportunities at this senior level and the conservative nature of this market. Most opportunities have been at the assistant company secretarial level where candidates have been able to take on more senior responsibilities in their area of specialisation.
Retention strategies have included training and development opportunities, paid study, flexible and remote work and opportunities to work on strategic projects and to attend conferences.
One of the major challenges confronting company secretaries relates to remuneration and how the role is to be adequately measured. A common theme emerging from the roundtable discussions was the challenge of accurately quantifying the contribution and assessing the worth of the company secretary position when calculating remuneration.
If things are running smoothly and company secretaries are doing their job effectively they can become somewhat invisible. Many company secretaries lamented not being noticed “unless something goes wrong!” Company secretaries cannot point to a tangible bottom line contribution to justify salary increases or bonus payments, and their remuneration can stagnate as a result.
Many company secretaries suggested that 360° feedback sessions or involvement in specific projects had assisted in improving their visibility and remuneration packages. 85% of company secretaries felt they needed to be more proactive in setting clear KPIs to demonstrate their value-add to the business, and consequently be more appropriately remunerated.
Remuneration for company secretary positions has remained stable in recent years. This is dictated by a range of factors, including the size of the company and whether it is publicly listed, the scope and responsibilities of the position, the level of experience and qualifications of the company secretary, and the view of the importance of the company secretarial function by senior management.
Average national salary increases have been circa 2–4%. 72% of company secretaries obtained a bonus based on their individual performance (assessed by achieving KPIs, feedback from the business and other measures) and company performance.