Law Firms Tightly Controlling Salary Costs to Protect Profit

Law firms are tightly controlling salary costs as a key strategy to protect firm profitability in a challenging market, according to the results of the 2014 ALPMA/Rusher Rogers Legal Salary & HR Issues Salary Survey.

Most firms plan salary increases at or below CPI

“Most firms are planning modest salary increases at or below the Consumer Price Index (CPI) for most of their staff,” Australasian Legal Practice Management Association (ALPMA) President, Mr Anthony Bleasdale said. “Salaries make up a significant portion of overhead costs, and firms are maintaining tight control of their payroll and endeavouring to do more with the same or less resources,” he said.

Of the 230 respondent firms from across Australia and New Zealand, 40.5 percent of respondent firms expect to pay only CPI adjusted salary increases.

A third of respondents (33 percent) anticipate salary increases above the rate of the Consumer Price Index (CPI) for their staff. This is down 15 percent from the 2013 results (where 48 percent of firms planned increases above CPI) and 20 percent from 2012 (where 53 percent of firms planned increases above CPI).

A further 22 percent of respondent firms are planning partial wage freezes with some individual pay increases below CPI. 4.5 percent of respondents (all from firms with less than 75 staff) expect a total wage freeze at their firm.

“It is clear from all our research that firms are implementing a range of cost control measures in order to protect firm and partner profitability in a challenging market,” Mr Bleasdale said.

Salaries are flat-lining, but lawyers still best-paid in WA

The survey tracks salaries for 74 roles at law firms spanning legal, managerial and administrative functions, and breaks this data down by location and firm size to enable benchmarking of compensation strategies with ‘like’ firms. For the first time this year, the survey includes a breakdown of salary data by role for firms based in New Zealand, as well as those in New South Wales, Victoria, Queensland, South Australia and Western Australia.

“Salaries for all positions at law firms are flat year-on-year, with some notable declines in salaries for lawyers in Western Australia,” Mr Bleasdale said.

This low wage growth in the legal sector is consistent with what is happening in the broader Australian market, with recent ABS figures showing annual wages growth in Australia is the slowest on record, Mr Bleasdale said.

“Even with the declines for some roles in WA, lawyers at all levels of experience are paid best if they are based in Western Australia or at large firms with more than 150+ staff,” Mr Bleasdale said.

Managing Partners, General Managers and Practice Managers earn the most at firms with between 74–150 staff in NSW, while CEO’s are best paid at NSW firms with more than 150+ staff.”

Recruitment demand is steady—but finding good people remains the #1 HR challenge for law firms

Demand for law firm staff remains steady year-on-year, with most firms (80 percent) likely to be in the market for lawyers/solicitors in the coming year, with 56 percent likely to recruit secretarial staff and 36 percent likely to recruit paralegals and 28 percent likely to recruit administrative staff.

“Opportunities remain limited for executive and managerial staff at law firms,” Ms Susie Rogers, Director of Rusher Rogers Recruiting and survey partner said. “These roles are tightly held, with churn predominantly caused by firm restructuring.”

“Few firms seem to be investing in non-legal roles to drive firm growth,” she said.

‘Finding good people’ remains the number one HR challenge for law firms for the third year in a row, followed in equal second place by ‘managing poor work behaviour/performance’ (up from number four last year) and ‘employee retention/talent management’.

Ms Rogers said that it was interesting that firms were having difficulty finding good staff in a recruitment market that favours employers.

“I think the key word is ‘good’ and that the challenge for law firms is finding people who are a good cultural fit for their firm,” she said. “Law firms can be very rigid in specifying the skills and industry experience they require, which means that they eliminate quality candidates at the resume stage and without spending any time exploring their attitude or cultural fit.”

Partner communication and management skills & driving change is firmly on the agenda at law firms

‘Managing Partner communication and staff management skills’ (fourth place on the critical HR issues list) and ‘ability to drive change’ (fifth place) have moved firmly onto the agenda at law firms, with these issues debuting in the top five most important HR issues for law firms, replacing ‘developing organisational leadership capability’ and ‘effective social media useage’.

“While most Managing Partners and Partners are excellent lawyers, there are few that are natural leaders, great people managers or strong communicators,” ALPMA President, Mr Tony Bleasdale said.

Compounding this problem is the fact that law firms are under increasing pressure to adapt if they want to thrive in rapidly changing legal landscape, he said.

“Driving change can be difficult in law firms, and, to be successful, change absolutely has to be led from the top,” Mr Bleasdale said. “That’s why helping Managing Partners and Partners develop and enhance their management and leadership skills, and the ability to drive change is such a key HR issue for many of our members.”

About The Survey

The ALPMA/Rusher Rogers Legal Industry Salary and HR Issues Survey is the most comprehensive, independent report on salaries for all roles at law firms in Australia and New Zealand. The ALPMA/Rusher Rogers Legal Industry Salary and HR Issues Survey Report provides a detailed review of salaries paid for 74 roles within legal firm, spanning legal professionals, executive, management and administrative staff categories at law firms, and differing levels of seniority and experience for each category.

The report shows the highest and lowest salary paid for each role, and the estimated average salary paid. 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 intentions, employment benefits, bonuses and staff employment arrangements. This year, the report was expanded to identify the key HR challenges facing law firms in Australia and New Zealand.

The ALPMA/Rusher Rogers Legal Industry Salary and HR Issues Survey Report is provided free of charge to participating firms. Non-participating firms can purchase a copy online for $550 (ALPMA members) or $2,200 (non-members) from here.

About ALPMA

The Australasian Legal Practice Management Association, (ALPMA), is the peak body representing law firm managers and leaders. ALPMA provides an authoritative voice on issues relevant to legal practice management. ALPMA delivers a comprehensive professional learning and development program for members, which includes regular practice management seminars across Australia and New Zealand, the annual ALPMA Summit, webinars and live-streamed events, online resources and a legal industry research program.

ALPMA’s recent Financial Performance Benchmarking Study, conducted in with Crowe Horwath, identified that law firms were sacrificing growth forecasts and carefully managing cash flow and costs to protect partner profitability in response to challenging economic conditions. The study shows that the average profitability of firms has risen slightly to 9.5 per cent (from 9.4 per cent), while growth forecasts have dropped an average of 2 per cent, from an average of 11 per cent last year to 9 per cent this year.

About Rusher Rogers

Established in 1996, Rusher Rogers Recruiting is a Melbourne-based recruitment agency providing high quality temporary and permanent recruitment services for candidates and clients alike. Rusher Rogers has extensive experience in permanent recruitment and the selection of staff for a variety of roles, including recruiting for tier one management positions. The Rusher Rogers team offer professional, honest and time efficient service and is totally committed to matching the 'right' candidate to the 'right' job and ensuring total client and candidate satisfaction.

2014 ALPMA/Rusher Rogers Australian HR Issues & Salary Survey research report is available now.