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Fewer firms looking to negotiate above-CPI wage increases this year

Balancing the tough labour market against a period of rising inflation is tough for Australian law firms; however, it appears that the number of firms prepared to negotiate higher individual salary increases has dropped.

user iconJerome Doraisamy 19 May 2023 Careers
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ALPMA report

The Australasian Legal Practice Management Association (ALPMA) has released its annual Australian Legal Industry HR Issues and Salary Survey, which provides an annual overview of salaries paid in law firms across the country. This year’s survey provides data for 9,785 staff employed across 307 legal offices in Australia.

In the past fortnight, Lawyers Weekly reported that, according to the survey’s findings, most law firms across Australia expect to increase headcount this year, despite significant economic headwinds on the horizon, and that firms may be moving away from contracted or casual staff in favour of permanent full-time arrangements for new employees.

 
 

Wage growth for lawyers

In a recent opinion piece for Lawyers Weekly, Naiman Clarke managing director Elvira Naiman reflected on whether, this year, pay bumps for lawyers will be more conservative or remain above CPI — particularly against the backdrop of a “large proportion of lawyers …experiencing mortgage and other living costs pressure”, Ms Naiman wrote.

Speaking about the big end of town, she submitted that “it may be that law firms need to deal with this by providing stronger-than-usual end-of-financial-year bonuses rather than setting an even higher bar for reviews in 2024 by increasing base salaries beyond the usual CPI-type increase”.

In discussion of the aforementioned difficult balancing act facing law firms, ALPMA wrote in its report that “while wages need to keep pace with rising living costs and encourage staff to stay with their current employer, offering above consumer price index (CPI) increases to provide a boost to real take-home salaries becomes increasingly difficult”.

In light of this — and while many law firms across Australia remain prepared to negotiate salary increases that are above CPI — the number of firms has dropped from over one in three (36 per cent) in 2022 to just under three in 10 (28 per cent) this year.

This reflects, ALPMA wrote, in reference to Australian Bureau of Statistics (ABS) data, the difficulty of providing above-CPI wage increases in a high-inflation environment.

“In the year to the December 2022 quarter, national wages rose by 3.4 per cent, with the CPI rising by 7.8 per cent over the same time period,” it noted.

Interestingly, the largest firms operating in the Australian market are the least likely to offer individual negotiated increases above CPI, with only 8 per cent of such firms planning to do so.

Medium-large firms, on the other hand, are twice as likely to do so (16 per cent).

This correlates with Ms Naiman’s supposition, in the abovementioned piece, that “given that many international firms based in Australia may be getting pressure from head offices in the UK or the US to take a conservative approach to reviews this year, the Australia-based larger firms may be in a position to offer their lawyers something less conservative”.

In place of above-CPI wage increases is a rise in firms anticipating providing increases in the 3 to 5 per cent range, with 27 per cent of firms planning this in 2023 compared to 19 per cent of firms last year.

Elsewhere, 17 per cent of firms said that they would offer CPI-adjusted increases only (up slightly from 16 per cent in 2022), and 12 per cent of firms surveyed noted that only some positions would see salary increases, with a limited freeze being implemented elsewhere across the business.

Reflections

In conversation with Lawyers Weekly, ALPMA president Stephen van Dorp detailed that, while the number of lawyers anticipating individual employee negotiated increases to be above CPI this year is lower than last year (28 per cent compared to 36 per cent in 2022), one can speculate that this drop is “a result of some firms being concerned about upcoming economic challenges and the compounding effect paying over CPI rates makes to your bottom-line, year on year”.

“That said, our member firms don’t look to take advantage of economic conditions and are very aware of the talent-short market in which we all operate,” he added.

“Rising inflation and cost-of-living expenses impact the day-to-day experiences of our employees, and firms understand there is a need to reflect this in their remuneration increases this coming salary season. Our members will certainly be prioritising the reward and recognition of their team members in their current budgeting processes and will have a high focus on staff retention strategies, salary increases being one tool.”

ALPMA’s research has identified, Mr van Dorp continued, “differences across the law firm size continuum with a higher percentage of smaller firms offering to negotiate individual increases above CPI, whilst towards the larger end we see more holistic percentage increases within a range”.

“Overall, though, whilst the percentage of firms anticipating individual employee negotiated increases above CPI has reduced this year, we still see overall that 63 per cent of firms will be seeking to increase salaries by greater than 3 per cent,” he concluded.

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