Lawyers still receiving pay rises but are ‘slightly less happy’ with bonuses, says recruiter
After the Australian legal market remained buoyant during FY23 in comparison to other major global markets, firms have continued to remain positive, despite a potential recession on the horizon, according to the director of Beacon Legal.
While role volumes have decreased comparatively to the previous year, Australia continued to offer a strong legal jobs market with numerous opportunities for lawyers, according to Beacon Legal’s new salary report.
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The release of the report follows speculation that lawyers would be unlikely to receive above-CPI wage increases this year, with one recruiter noting that many would be disappointed with their raises compared to 2022.
Last year, a candidate-short market was reportedly driving legal salaries up across the country following a turbulent two years and a global pandemic.
And as previously reported by Lawyers Weekly, many legal candidates in the Sydney and Melbourne markets also jumped ship coming out of statewide lockdowns to move either interstate or, when travel restrictions were eventually lifted, overseas — something which made the recruitment of senior and mid-level lawyers, in particular, tougher than ever.
While a candidate-short market has resulted in financial incentives such as a “loyalty tax” for firms to retain lawyers and significant salary hikes for entry-level law grad roles, it has also resulted in an increase in people and culture-led initiatives, such as flexibility and value alignment, despite the majority of lawyers preferring pay rises to perks.
2023 and beyond
Particularly with changing market conditions, the Beacon Legal Salary & Market Report July 2023 predicted that firms would become more agile and offer lawyers the chance to expand their skill sets and make themselves more well-rounded in a variety of practice areas.
“The major law firms have reported stable pipelines of work, with a cautiously positive outlook for the second half of 2023 and anticipation of an increase in M&A transactions in 2024, which will drive the market forwards,” the report noted.
“Hiring remained stable within finance, real estate, technology, ESG, cyber and energy transition, with demand remaining focused at the experienced associate and senior associate levels in particular. We are also seeing counter-cyclical increases in hiring across contentious practice groups and, in particular, insolvency.”
Prior to the release of the report, speaking on an episode of The Lawyers Weekly Show, produced in partnership with Beacon Legal, Alex Gotch said that most firms are “taking a positive approach” in not chopping headcount but also pessimistic about what the next 12 months will bring.
“My conversations with partners and with HR managers do tend to be relatively positive, although, as I said, cautious. I think the firms are anticipating that the work pipeline is not going to be as strong, perhaps over the next six to 12 months. Although I do think that there’s a lot of noise in the media about a recession and how bad everything is, and I don’t think it’s probably quite as bad as everyone is making out when we had a similar situation. Well, I think it was a worse situation during COVID, when COVID first hit that first three or four months and there was huge amounts of uncertainty in the market,” he explained.
“I’m still relatively positive, compared to that time. Fundamentally, I think the economy is still strong, and although we need a few changes to happen for the market to pick up across the board, I think once interest rates start going down and the PE funds start to spend the billions in their coffers and M&A deals start to happen again, then that will have a positive impact across the whole market. Although I think the firms are budgeting that that’s probably going to be 2024 into 2025.”
According to the salary report, however, lawyers are still getting pay rises, with Beacon Legal seeing increases of eight to 10 per cent, on average, in BigLaw firms.
“I think the last two years has been a bit of an anomaly in terms of the levels of salary rises and the levels of salaries generally which lawyers can command in the Aussie market. And when the rate of growth is less than [in] previous years, people naturally would have a tendency to look at that in a less positive light. But if we put it in the context of the last five years or ‘x’ amount of years, I think getting a five to 10, eight on average per cent salary rise is a good result really and in line with what you’d expect over a sustained period of time,” Mr Gotch added.
“So, I think in terms of lessons lawyers can learn from that is to make sure, when getting salary reviews, everything is just kept in the context of where the market is at the moment, where it’s heading in the next 12 months and making sure that there’s a realisation of salaries in the last 18 months, just as job vacancies probably aren’t the real gauge of exactly where the market is generally.”
According to the report, legal salaries were highest in Sydney and Melbourne, with salaries in Brisbane continuing to increase rapidly and those in Adelaide stalling somewhat; for example, the report noted that Adelaide-based senior associates (at the SA2 level) at well-reputed firms could be earning less than $110,000, whereas, in contrast, there are first-year senior associates (SA1 level) at premier firms in Melbourne who were earning $180,000, with up to a 25 per cent bonus on top of that.
The average PQE level-one salary in top-tier Melbourne firms was $115,500 and $120,750 in Sydney, compared to $94,500 in Brisbane and just $75,000 in Adelaide.
Demand for top senior associate talent remains strong in Sydney, with those with five to eight years PQE able to secure a 10 to 15 per cent pay increase when moving between peer firms, plus a sign-on bonuses of $10,000 to $15,000. This was similar to Melbourne, with the report noting that the salary gap between the two cities is narrowing, as “significant cost of living and lifestyle benefits have led to Melbourne rapidly becoming a ‘go-to’ city in terms of Australian interstate movers, as well as international movers from the likes of London and New Zealand”.
“I only have to go back four or five years and the gap between Sydney and Melbourne was probably more like 10 to 15 per cent, whereas now I’d say it’s probably more like 5 per cent in the difference. The Brisbane market is one where we’ve seen a higher rate of salary growth comparatively to the other markets,” Mr Gotch added.
“Brisbane’s an up-and-coming market; there was a lot of migration into Brisbane, interstate from lawyers, especially during COVID, you’ve got the Olympics in 2032. Lots of infrastructure and spend in South Queensland and definitely seeing salaries rise comparatively highly in Brisbane to other markets. I think those three major cities, Brisbane, Sydney, Melbourne, the rises have been steeper than in the other major Aussie cities, as you’d maybe expect.”
However, lawyers have still been “slightly less happy” with their bonuses across the country, as firms experience a slower pipeline of work compared to previous years.
This said, Mr Gotch added that “in pockets of firms where work [has] remained relatively stable, firms do bonus people fairly”.
“If you’re doing the hours and doing the main tasks which are going to generate a bonus, lawyers will still get good bonuses, but I think on average, because the billables have decreased, that’s going to have a negative impact on bonuses. Again, that can lead to disappointment if someone feels like they’ve been working hard or doing a really good job in other areas. At the end of the day, law firms are businesses and making a profit is probably the paramount area which firms look at when they’re sending out bonus information and paying the lawyers above and beyond their salary,” he added.
“So, I think that’s a really important factor to consider. Although, yes, I do understand from a number of lawyers in the market that the slightly lesser bonuses aren’t as well received as one would imagine. But hopefully, as the corporate markets start to pick up and the M&A transactions start to happen again, maybe going into 2024, that can give us a positive outlook and hopefully bodes well for the next bonus season this time in 12 months.”