Small Law Firms Successfully Competing With Top End of Town When It Comes to Salaries

Small law firms are aggressively competing with larger firms when it comes to law firm compensation strategies in a bid to attract and retain key staff, according to research conducted by the Australasian Legal Practice Management Association (ALPMA), with research partner McLeod Duminy Careers.

Sixty-two New Zealand law firms from across the country, employing 1,836 people, completed the inaugural ALPMA/McLeod Duminy New Zealand Legal Industry Salary & HR Issues Survey, providing comprehensive information about salaries paid for 74 roles within New Zealand law firms, spanning lawyers, executive, management and administrative staff.

Previously, salary data from NZ law firms was included in ALPMA’s Australian survey.

Show me the money!

“Small firms offer the highest average salary for six of the 15 legal roles tracked in the survey, including graduates, Special Counsel, Equity Partners and Managing Partners,” ALPMA NZ Chair and General Manager at Lowndes Jordan, Sheryll Carey said. “Small firms are also strongly competitive in terms of salaries for most other roles.”

Senior Associates, Associates and more experienced lawyers are best paid at large firms with 75+ employees, with large firms offering the highest salaries for eight out of the 15 legal roles and most management roles. Salaried partners and lawyers with one year post-qualification experience were the only best-paid legal roles at mid-sized firms.

“When you add into the mix the fact that more small firms offer bonuses to more staff than mid-sized firms, then it is clear that small firms are competing aggressively on compensation strategies to attract and retain staff,” Sheryll said. “Mid-sized firms need to lift their game or risk losing out on staff to both smaller and larger firms.”

Overall, lawyers working in Wellington to attract the highest wages in New Zealand (10 out of 15 roles), with Auckland the best paid place to work for the remaining legal roles including Associates, Salaried Partners and Equity Partners.

Most firms plan salary increases at or above CPI rates

The overwhelming majority of NZ law firms (93%) expect to pay salary increases at or above the Consumer Price Index (CPI) over the next 12 months.

48% of firms anticipate individually negotiated salary increases above the CPI for their staff, while 45% expect to pay CPI-only increases.

“The need for firms to focus more on pay had been evident to us for a while as the question of salary has become more of a priority for many of the candidates we have been speaking with,” Kirsty Spears, Research Partner and Legal Recruitment Consultant at McLeod Duminy, said. “After a period of relatively static salary levels it is good to see firms are responding positively to market demand.”

Only 4 percent of respondents are planning partial wage freezes with some individual pay increases below CPI, while 3 percent of firms expect to implement a total wage freeze. All these respondents were from small firms.

Hiring for Growth

Most NZ law firms (81%) expect to recruit lawyers next financial year, with 60% planning to recruit secretarial staff, 35% likely to recruit legal executives and 30% planning on recruiting administrative staff.

The majority of firms (63%) report that they plan to hire new staff to replace existing staff—while 37% indicated that they were recruiting to grow their firm.

Of those hiring for growth, 52% are planning on growing by recruiting lawyers and legal executives, 13% by hiring new legal secretarial staff, 12% by hiring legal executives and while only 10% were planning on boosting their business development and marketing staff.

“Firms are continuing to focus on strategic lateral recruitment of lawyers who come complete with clients and billable work,” Ms Carey said.

Finding good people is the #1 challenge—but firms failing to adopt best practice recruitment strategies

‘Finding good people’ is the number one HR challenge for New Zealand law firms, followed by employee retention/engagement and managing poor work performance. This is consistent with the findings of ALPMA’s Australian law firm research.

Despite this result, few firms (8%) have implemented a proactive talent sourcing strategy, which involves identifying and engaging with potential candidates before there is an actual vacancy, preferring to advertise when the need arises.

“This is clearly an area where firms with a well-crafted, proactive strategy can gain a significant advantage,” Ms Spears said. “As the market for high calibre candidates continues to tighten a purely reactive strategy will become even less effective.”

While all large firms offer a recruitment referral bonus for their employees, only half of medium sized firms, and 14% of small firms have adopted this practice.

Becoming more flexible—but not so diverse or inclusive?

The survey also sought to understand the adoption of diversity and inclusion programs at New Zealand law firms.

70% of all respondent firms do not have a diversity and inclusion program.

Program adoption varies significantly by size of firm—with 81% of large firms implementing an diversity and inclusion program, compared to only 11% of small firms.

The diversity and inclusion programs implemented at respondent firms covered a variety of policies, from work-life flexibility, gender equality to lesbian/gay/bisexual and transsexual participation. All firms with a diversity and inclusion program have a specific policy for work-life flexibility, and 87% have a gender equality policy.

“While there are only a small number of firms to date with a formal diversity and inclusion program, it is pleasing to see that New Zealand firms are beginning to embracing the most sought after request, for flexibility in employment practices,” Ms Carey said. “Overall, 68% of New Zealand law firms now offer flexible working hours, compared with 78% of Australian firms.”

Productivity & Performance Measures

The survey also analysed a variety of staffing ratios, commonly used as indicators of productivity and performance at law firms.

The ratio of fee earners (lawyers and paralegals) to non-fee earners (all other positions) is used as an indicator of law firm productivity. Overall, for every 5 fee earners, there are 3 non-fee earners at New Zealand law firms. Typically, the higher this ratio, the more productive a firm may be.

This is further supported by reviewing the ratio of fee-earners to legal secretarial staff. Overall, there are three fee-earners to every one legal support staff at New Zealand law firms.

“Thanks to technology, lawyers have become more self-sufficient,” Ms Carey said. “This, combined with the outsourcing of services like sending dictation overseas for overnight transcription, means that we expect this ratio to continue to decline.”

Another key metric is the ratio of fee earners to partners, used to indicate the efficiency of a practice group, in particular how effective a partner is in delegating work to more junior members of their team.

Overall, there are four fee-earners per partner at New Zealand law firms. Partner in this context includes both salaried and equity partners and also includes Managing Partners who may also maintain a practice.

“Ideally law firms want partners out there representing the firm, developing the business and client relationships and using more junior staff to support them on matters and file work,” Ms Carey said.

The most comprehensive, independent report on salaries for all roles at law firms

The inaugural 2015 ALPMA/McLeod Duminy New Zealand Legal Industry Salary & HR Issues Survey Report shows the highest and lowest salary paid and the ‘typical’ salary paid for 74 roles at law firms. Salaries for each role are also broken down by size of firm and by location, allowing companies to benchmark their remuneration strategy for each role with similar firms.

Other information provided in the report includes anticipated salary movements, recruitment plans, employment benefits, bonuses and staff employment arrangements. This year, the survey was extended to include questions about diversity and inclusion, and recruitment strategies, and the data was further analysed to review staffing mix ratios.

The ALPMA/McLeod Duminy New Zealand Legal Industry Salary & HR Issues Survey Report is provided free of charge to all participating firms. Non-participating firms can purchase a copy online for $A550 (ALPMA members) or $A2,200 (non-members). Data was collected in March, 2014.

About ALPMA

The Australasian Legal Practice Management Association, (ALPMA), is the peak body representing managers and lawyers with a legal practice management role. ALPMA provides an authoritative voice on the business of law. Members of ALPMA provide professional management services to legal practices in areas of financial management, strategic management, technology, human resources, facilities and operational management, marketing and information services and technology.

ALPMA set up its NZ operation in 2014, and now boasts more than 100 New Zealand law firms as members. For more information visit www.alpma.com.au

About McLeod Duminy

McLeod Duminy are specialist, legal recruiters based in Auckland and will be celebrating their second birthday this month. We enjoy travelling and work with all sized firms across New Zealand.  We know that these days our clients are able to source candidates from many of the same avenues as us, and so we have to delve a little deeper into the market through a combination of technology and good old -fashioned networking.  For more information, please see the McLeod Duminy webpage.

2015 ALPMA/McLeod Duminy New Zealand HR Issues & Salary Survey research report is available now.