Speaking on a recent episode of The Lawyers Weekly Show, produced in partnership with Naiman Clarke ahead of the release of its new salary guide, Ms Naiman said that post-pandemic and amid an economic downturn, salaries in law are unlikely to be as bloated as they were last year.

Ahead of the end of the financial year, Ms Naiman said that she believes that “a lot of lawyers are going to be disappointed” come review time.

“Last year was a really unusual year. We’ve discussed this historically, where a lot of lawyers went up by 15 [or] 20, and in some instances, we saw lawyers go up by 30 and 40 per cent in their salaries. I think the economic market wasn’t in danger at the time. So, I think it felt like a very genuine input into most lawyers’ cash reserves. Obviously, with the interest rates in general economic outlook than what they are, I think that there is certainly an expectation. We are hearing it particularly from the junior lawyers about a jump this year that looks in some ways similar to last year,” she explained.

“And I think the reality is that it’s probably only going to be something in the order of 8 to 12 per cent, with our consumer price index sitting at around 10 per cent. I do think that law firms might try to buffer that expectation a little bit by providing additional or ad hoc bonuses to some of their high-performing lawyers. But I think generally speaking, I think lawyers expecting much more than a 10 per cent increase are unfortunately going to be disappointed.”

This comes after the Australasian Legal Practice Management Association recently published data saying that fewer firms will be making above-consumer price index (CPI) salary increases compared to last year.

But in terms of reverting back down to a somewhat “normal” salary increase, Ms Naiman said that historically, salary raises have felt larger because of the lower cost of living.

“Australia’s been in a really wonderful position where our inflationary rate has only sat around between two-and-a-half and 4 per cent more or less in the last decade. And what that has meant for law firms is that if they do a 5 per cent salary increase to a lawyer and then account for perhaps an additional year of practice, it generally feels like it’s a bit of a jump. So, if interest rates are low and cost-of-living pressures aren’t obvious, it feels like it’s a decent increase.

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“Then we had obviously the pandemic that, I think, everyone was just a little bit all over the place and wasn’t sure what sort of salary was right in all the circumstances to then find ourselves in a year last year where law firms were making great profits, lawyers were getting astronomical increases,” she outlined.

“Given the work rate that is expected of lawyers, I think that their view, and perhaps rightly so, is that they are essentially underpaid for the work that they do. I had a funny situation sometime back where I had a very senior lawyer who was working ridiculous hours, and I think she’d clocked in 2,100 hours in one year. And I think we worked out that her hour rate was something like $15 an hour or something. And she said, ‘You know what? I could possibly be working at Woolworths for more money’.”

As many lawyers go through not only five years of “laboured” university but also a two-year rotation program, Ms Naiman said that by the time they find a practice area they enjoy and want to work in for the foreseeable future, the expectation is “real money”. This, and the rising cost of living, lead to slightly bloated salary expectations.

“The cost of living has gone up quite considerably since the last review. Interest rates have been one of the things that goes into that basket. I think the feeling is, well, ‘I’m not doing less work, I’m still being productive’. Why am I taking what could maybe [be] a $10,000 increase when the salary increases are also meant to account for the next year of PQE level? So, it may seem to some lawyers that increase doesn’t feel fair, particularly where the general consensus in the market is that law firms have continued to make extraordinary profits,” she explained.

“What we find a lot is that the salary and what the candidate can actually be billed at to a particular client … There seems to be a disconnect between those factors and what the lawyer thinks they can be reasonably paid because all those things are tied up in an equation. So, I think the more senior lawyers get that there is an equation in place and they’ve got to make a particular multiple of their salary to be profitable to a firm.

“I think the more junior lawyers sometimes don’t fully appreciate the commercial aspects that go into the decision making around what they should and shouldn’t be paid. I get that. I get that a lot of them are working very, very hard and really trying to build their careers and also try to be successful in other ways. So, I think that disconnect is sometimes just inevitable in the employer relationship.”

This upcoming salary review period also comes at an “awkward time”, Ms Naiman added, with signs pointing to a potential recession, leaving things a little uncertain.

“There is that delicate balancing act between, well, we’re still busy and we’re still doing really well versus over the next 12 months, we may be having very different discussions. So, I suspect that law firms [are] obviously very mindful of what may be over the next 12 to 24 months,” she added.

“And again, I think there’s a disconnect between what we’re experiencing right now and what we’re going to be experiencing over the next probably four to six weeks during this next salary review period versus what law firms might predict for their success over the next 12 to 24 months.”

More to come.

The transcript of this podcast episode was slightly edited for publishing purposes. To listen to the full conversation with Elvira Naiman, click below: