Market Advice

Private Practice in 2018 – 2019

Private Practice

Change and growth are the key themes for the private legal profession this year: growth in partner numbers, often by lateral recruitment and firm mergers and change in the range of offerings that law firms have added to their suite.

Overall, the profession has enjoyed strong profitability growth, particularly the larger global firms, national firms and high-performing mid sized firms.

Commercial transactional work, litigation and infrastructure have led the way, with the latter area (including front and back end construction) being particularly strong in Victoria and New South Wales. Property and property development are in demand in Melbourne; Sydney demand for employment lawyers is high, as it is for data security, IT and governance experts.

The proliferation of Royal Commissions in Victoria has also placed great demands (and been very attractive financially) on certain firms as well as the Victorian Government Solicitor’s Office.

The repercussions of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry have led to a rise in regulatory advice as financial institutions rejig their processes and systems and strive to comply with the inevitable heavier compliance burden. Sale

of wealth businesses by the major banks means attractive M&A work for the larger firms. This work is focused in Melbourne and Sydney.

With Boards more conscious of their liability ‘post Royal Commission’, head office advisory teams are once again in vogue.

Technological change has also helped to drive growth and increased efficiency. Applications impact high volume, document-heavy transactional and litigious projects, with the global firms expanding their alternative legal services divisions to provide 24 hour technological, legal and administrative solutions for clients worldwide.

The rise and rise of the Big 4 accounting firms continues. These multi-disciplinary, collaborative models appeal to lawyers from traditional law firms, although the more imaginative ‘traditional’ law firms are pushing back, moving into allied professional services: public policy, business consulting and tax advisory. Forensic investigation services, the use of AI and cyber security consulting form part of this expanded service model.

Increased casualisation

In-house contract services for clients is now an established profit centre of a range of larger firms, resulting in a reduction of secondments to corporate clients, although firms will still send a solicitor on secondment to retain a client.

Some firms use their contracting arm to engage lawyers for their own ranks, without the commitment of a permanent appointment.

The proliferation of Royal Commissions has increased opportunities for lawyers willing to be employed on short term contracts.

Mobility is also on the increase, with lawyers relocating (or being relocated!) to another Australian office of their firm to cover demand or to achieve
a shorter path to partnership where the ‘home’ office is overcrowded at partner level. International secondments within global firms increased this year, as did secondments to ‘friendly’ firms overseas from the large independent domestic firms here.

Movement of lawyers to London has decreased, likely because of the uncertainty of Brexit as well as plenty of opportunities in the domestic market.

Remuneration and benefits: lifestyle counts

So how does this level of activity and success affect the employee lawyer? Despite the immense competition for solicitors of all levels, overall, salaries have not risen markedly, although bonuses for outstanding lawyers still exist.

It is tempting to assume that because law firm revenues have gone up, salaries and bonuses will also increase markedly. However, our research indicates that this is not the case across the board.

There could be many reasons for this: all of the firms are having to invest huge amounts of money in technology (including into potential strategic projects and acquisitions); others are ‘battening down the hatches’ for a much softer 2019/20 than is heralded publicly. While post Royal Commission work continues to lift revenue of certain firms, there is a recognition that this will inevitably taper off.

The public face of remuneration overall shows moderate salary increases and movement in the salary bands across all states. Bonuses, where paid at all, are limited to those who exceed their budgets after an especially demanding and lucrative deal or litigation, with the upper end being 15% of a lawyer’s salary package for outstanding financial performance. Unfortunately, these rewards are enjoyed by only a few. The rise in contracted senior associates keeps the bonus budget low, as they are generally not eligible to receive a bonus at all.

Law firms will pay top dollar for specialist lawyers in hard-to-fill positions such as construction, mergers and acquisitions and private equity. Melbourne lawyers in these specialist areas at 3 to 7 post qualification experience (PQE) levels are achieving significantly higher salaries than in the previous year. The firms are competing with corporates and government entities in the infra boom in Victoria as well as with competing law firms, corporates and government entities in the other states.

Despite this growth and activity, sharing the equity pie through organic promotion is something partners seem reluctant to do. The queue to partnership is longer than ever, with many lawyers with 12+ years of practice hoping, but not guaranteed, to gain equity in the next two to three years of their careers. The stretch of senior associate and special counsel (or equivalent) salaries is now very wide, as it encompasses lawyers with anything from 5 to 15 years’ PQE.

The profession has been under the microscope this year. Allegations of unsafe work practices, bullying and harassment have shocked the profession
and brought a welcome increased awareness that ‘norms’ of behaviour accepted or ignored for years are no longer acceptable.

Despite this awareness, the massive demands wrought by the Banking Royal Commission and the all-too-common ‘accepted’ hours and conditions imposed by many firms means that private practice lawyers are loath to move to another law firm, choosing instead to pursue a career in-house, in government or outside law altogether. Lawyers tend, rightly or wrongly, to expect the same long hours, lack of social life and budgetary pressure at another firm of similar size. The challenge remains for law firms to attract and retain brilliant young lawyers who are more and more saying ‘no’ to this lifestyle.

To counter this trend, a small number of enlightened firms and companies have introduced greater flexibility in working arrangements, additional holidays for longstanding staff, superannuation payments made while on parental leave and even “term time” which allows for full time work during the school terms and self-funded leave over school holidays. We predict that more law firms will follow suit.

Open plan office space, more leniency around dress code (such as ‘dress for your day’) and the time and budgetary space to contribute to innovation projects helps to retain good staff.

Partners: Movement

Demand for a mid-career partner with a sound client following and fee book remains. Increasingly, an entire team will accompany the partner(s), leaving a large gap behind and, in turn, encouraging a backfill through another team acquisition.

These practice group moves are considered less risky than sole partner moves and often result in better firm integration.

In smaller markets, such as Brisbane, partner movement has an enormous impact on the firm left behind, with a challenge to replace the skillset and the clients made harder by the tight, smaller field.

Lateral partner acquisition, with or without a team, is not the ‘silver bullet’ to a firm’s successful growth, expansion into a new practice area or strategy to win more clients. Effective integration and induction efforts are key, as is supporting the new partner/ team in staff and marketing resources, ‘open arms’ from existing practitioners to share client contacts and referrals from the outset and a willingness on the part of the receiving firm to accept that there is more than one way to achieve a result. Where flexibility and transparency doesn’t exist on both sides, the long-term success of the acquisition will be in doubt.

Partners: Reward

Dissatisfaction with remuneration decisions made by a central committee (and often offshore) within the global firms remains, particularly in firms where the Australian partners feel under or ill represented in management ranks.

Relative newcomers from the US tend to reward their partners and staff at much higher levels than their competitors and attract practice groups as they build their presence in the capital cities.

Top line revenue is strong, but overall there is less consistency within the major firms than they usually enjoy. The overall numbers are skewed by the significant overperformance of financial services, litigation and projects/construction. The market is “two speed” i.e. those practices which are doing well, are doing very well but these are countered by some notable under performances.

Increases in revenue as a result of commercial activity and special case scenarios (vis Royal Commissions) last year do not necessarily result in a significant uplift in partner drawings. Firms of all sizes are facing big bills for technology, acquisitions (of other firms, teams and new business ventures) and are adjusting to drop off of record revenue enjoyed during the Banking Royal Commission.

Outside an immediate uplift when making a move (and occasional sign on bonuses) there have not been significant increases in partner remuneration overall. Many partners will not do as well as in previous years in terms of percentage increase or even an increase at all. The market has softened most in Adelaide, where partners in major firms are earning less than last year.

There is also increased variability of reward among partners (salaried and equity) at the same firm and between firms in the same size bracket. This ‘haves and have nots’ culture is underscored by a real or perceived lack of transparency in remuneration levels, bonuses and promotions within a firm, meaning that even partners earning well compared to their peers feel undervalued.

Mid sized firms in particular exhibit this polarisation, with some partners taking home $1m + and others half that. This is reflected in the modes for mid sized firm partners across the major cities.

Corporate in 2018 – 2019

2019 saw in-house legal teams increase headcount to support business growth and to better respond to increased regulatory and business pressures. Delivering efficient legal services by growing and developing teams and meeting management demands for faster, better and cheaper legal services continue to be the challenges for general counsel.

This year has seen an increase in roles for lawyers with experience in infrastructure projects, real estate development, litigation including class actions, corporate law particularly mergers and acquisitions, finance, debt and capital markets, employment and, information technology. While most of the demand is for lawyers with 3 to 8 years’ experience, senior roles also increased, a result of the creation of more complex in-house legal team structures. General counsel roles were limited as these roles are tightly held but when they did arise, they were competitive, given the scarcity of the roles and the number of quality candidates pursuing the opportunity from both in-house and private practice.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry highlighted the need for robust compliance and risk management processes. Increasingly senior management view compliance as being a corporate and personal responsibility. This has all resulted in an increase in roles for regulatory lawyers particularly in the financial services sector. Mahlab reports an increase in legal roles overall and this is across compliance, governance, data privacy, and company secretaries and risk lawyers.

This year a number of lawyers have made moves to government and statutory authorities. Roles in the public sector have proved appealing for a variety of reasons, particularly roles in statutory authorities which offer a public sector environment with a private sector overlay. Reasons for appeal also include the opportunity to contribute to a greater purpose and at senior levels, the opportunity to lead teams, be part of the executive, to enjoy highly visible positions and flexibility. In the current market where remuneration increases have been flat, public sector lawyers in non-executive roles can have the added advantage of guaranteed annual remuneration increases which presently sit above the private sector market range.

While corporations are wanting to hire highly skilled lawyers, ‘soft skills’ and client relationship management abilities are now critical given the emphasis on partnering with and managing stakeholder relationships. Attitudinal fit is also gaining prominence. In return, lawyers are wanting high quality and varied work, flexibility, and a shared values-driven environment. Of these, in 2019, flexibility in its various permutations has been a strong, consistent theme.

Start-up brands are offering greater appeal to in- house lawyers and established large companies
are now struggling to compete for talent. Start-ups appeal to lawyers as they are perceived as allowing them to make a bigger contribution and to have
greater influence. Many lawyers are now preferring organisations which have a greater, compelling purpose, self-made inspirational leadership and, are working in the new economy; Uber, Google, and eBay are some high-profile examples.

Despite an increase in roles, mobility has slowed. Whilst corporations will often meet market and offer increases to lawyers to join their organisations, they have been more conservative in the salary packages offered to new starters. For many in-house lawyers there has been little financial upside to making a move. In the current climate of moderate salary increases, non-salary benefits have been used as tools to retain staff and are proving very effective, and while in-house life is demanding, it generally does not have the relentless long hours and high pressure experienced in many law firms which can impact on health and personal life.

The ongoing pressure to manage costs is an enduring trend that is increasingly assigning workloads solely to the in-house legal teams. Innovation is key to managing workloads and service delivery demands and budgets for innovation are growing. Parallel to the rise in the use of technology and its ability to maximise value across the company, lawyers now, more than ever, feel the need to demonstrate their own value to the business and to define their roles and responsibilities.

Cost pressures also ensure a place for contractors although this year there has been mixed views voiced by general counsel around the challenges of contract hire. These include challenges in attracting suitable quality talent, the high cost of hire and, a lack of corporate knowledge which takes time to build up, impacts on productivity and is lost at the end of the contract; a situation which is repeated with the end of one contract and the start of another. A definite preference is to hire permanent skilled lawyers who can offer more continuity and efficient, value-added services. Other general counsel appreciated having resources to draw from and then being able to scale back as needed. Interestingly, when new roles are approved there is a pressure on general counsel to commence the hiring process and use the budget as soon as possible to avoid any sudden cancellation of the approval by senior management based on cost-cutting.

Innovation

In-house legal functions remain at the forefront of innovation in the law by taking advantage of automation and artificial intelligence (AI). Technology is allowing lawyers to respond faster, support more clients and improve business performance. Budgets for innovation continue to be increased often at the expense of headcount and other areas of legal spend.

Some legal teams have even built their own bespoke platforms. High volume, low value tasks are now automated, contracts can be pre-screened with risks being identified in minutes, contracts are now applied consistently, and sales cycles have quickened. Additionally, technology is enabling general counsel to support strategic decisions by providing insights into negotiation trends across client segments. Billing processes have also been streamlined and improved through AI. The push to utilise technology has resulted in a greater focus on processes and policies to ensure the optimum benefit from the use of technology and artificial intelligence. Lawyers will often work in collaboration with IT professionals and the consultancy arms of accounting and law firms to improve processes and to streamline and automate whatever can be automated.

Insofar as the regulation of technology is concerned, lawyers are assigned with the increasingly challenging task of keeping up with new legislation and ensuring that they implement effective regulatory and risk minimisation strategies. This is particularly relevant in the complex and expanding area of data privacy and security; two key issues concerning corporate counsel in 2019.

Retention

Work-life balance and exposure to interesting and quality work, good remuneration and supportive work cultures, as well as opportunities for development and progression generally support the retention of lawyers.

Typically, movement occurs when lawyers move into more senior roles in another company, or where lawyers make a lateral move in order to
gain experience and work in a new industry. Other movement within the company was observed when lawyers moved into non-legal roles, such as sales strategy or product development where they were able to expand their skills outside of the law.

Dissatisfaction in an in-house environment in 2019 arose mostly in situations where the legal function was unable to offer development opportunities, was removed or distanced from the business or where there was a perceived lack of flexibility or consistent turnover of staff at senior management level and within the team. Generally, in-house lawyers found attractive roles quickly, particularly those at the 4 to 8 year PQE level.

Flexibility in the workforce has become a key theme in what lawyers want from their employers. Flexibility or rather agility means different things to different people although a clear theme is having control over where, when and how much individuals work. Whilst most employers offer some form of flexibility there

is still a huge variance between what is offered and expectations of lawyers. For many lawyers flexibility means being able to work from wherever and when it suits them. The most typical flexibility offered is the ability to work from home (usually 1 day per week) or to start early and leave late or vice versa. The arrangement assumes a high level of trust.

Flexible hours, working from home, job sharing and relaxed dress codes are all incentives that have made the appeal to moving and remaining in-house stronger than ever. Other retention strategies include development opportunities and secondments.

Overall, the outlook for the in-house legal market is very positive. Internal legal functions are well entrenched and will continue to grow as the demand for skilled lawyers persists. An in-house career remains an attractive career alternative with most in house counsel advising they are very satisfied with their career choice.

Remuneration and incentives

Remuneration, benefits and incentives such as bonuses and flexible work options have been used to attract and retain staff.

Lawyers making the move in-house do so to enjoy closer business involvement, better work, greater career prospects and greater flexibility. Good performers will almost always be rewarded and bonuses together with other benefits in a low wage rise environment have been utilised to reward these lawyers. Bonuses have typically ranged from

10 to 25% and most lawyers reported they did not achieve their full bonus, but attained around 75%. Long-term incentives continue to be offered at senior levels, particularly in the larger ASX-listed and multi-national businesses.

Company secretaries 

2019 was a positive year for company secretaries in line with previous trends, as a result of the regulatory environment and greater demand for robust corporate governance in the listed and non-listed space.

Recent Royal Commissions and greater public scrutiny have brought the need for good governance and compliance to the fore. Company secretaries are no longer administrative servants and their responsibilities continue to grow. This year, several senior roles were created by companies seeking stronger resources in this area to better support the CEO and the Board.

The company secretary today must add value and, amongst other things this includes taking a more proactive role than ever in delivering information to the Board and initiating relevant topics for agendas. This requires a strong understanding of the business and its strategic direction, a healthy appreciation of risk and high learning agility. Soft skills, the ability to collaborate and work with stakeholders including synergistically with the legal team are all important.

We have observed that a number of companies this year have created separate compliance and risk functions. This reflects the complex and expanding regulatory burden. Whilst dedicated compliance and risk functions create more robust compliance and risk capabilities, it can also blur responsibilities and requires strong collaboration between the company secretary, compliance and the risk and legal functions to achieve best outcomes.

Most company secretaries reported being under resourced. Many have some administrative support, albeit a shared resource. An overwhelming proportion of company secretaries work with software programmes to ensure efficiencies in the company secretarial process and increasingly more company secretaries are producing notices and documents for the CEO and Board digitally rather than in hard copy. In larger ASX-listed companies there is often a large team of company secretaries reporting to the group company secretary, who are responsible for different parts of the business and subsidiary companies. This compares to smaller and mid-sized companies where figures can range from around 1 to 3 professionals.

Company secretaries with legal qualifications tend to be preferred by many employers. Company secretaries will generally seek further career development by pursuing governance courses with organisations such as the Governance Institute of Australia to build on their skills and knowledge.

General counsel

Remuneration for general counsel across Australia varies considerably. This is because there is no one ‘standard’ general counsel role.

There are a number of factors that influence the remuneration of a general counsel. These factors include:

  • The size of the legal team (if any)

  • Geographical reach

  • Whether the general counsel is a member of the executive leadership team (ELT) with a direct reporting line to the CEO

  • Industry sector

  • Whether that organisation is publicly listed or not.

    Some general counsel roles are relatively narrow, solely managing the legal affairs of the company, while other general counsel can have a broad portfolio encompassing a range of responsibilities including company secretary and corporate governance matters, insurance, risk, compliance, human resources, and/or government and public relations.

    The location of the general counsel role may also influence salary if outside a capital city (for example a regional role). In general, salaries for general counsel in Sydney, Melbourne, Brisbane, Adelaide and Perth are competitive. In the unlisted environment, and in smaller companies, in which capital city the role is based in may directly impact remuneration. Hobart and Darwin have few general counsel roles, and salaries tend to be slightly lower than in the other capital cities.

    The total remuneration package for a general counsel can be significantly higher than just their base salary because general counsel have the potential to earn significant bonus percentages. On average, a general counsel will have a short-term incentive (STI) component of 20 to 40%. Long-term incentives (LTI) are often paid in addition to STIs

    for general counsel in ASX-listed companies and/ or when the general counsel is a member of the ELT. Again, LTI percentages vary but are commonly 20–40% and usually vest over a three year period.

    For further information regarding general counsel remuneration please contact a Mahlab consultant.

Sydney Office

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Sydney NSW 2000
syd@mahlab.com.au

+61 2 9241 1199

Melbourne Office

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Melbourne VIC 3000
melb@mahlab.com.au

+61 3 9629 2111  

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