PAY cuts have replaced layoffs as the money saver de rigeur for law firms. 

Cuts in compensation are "more widespread now than in past recessions," John Challenger, chief executive of outplacement firm Challenger, Gray & Christmas Inc, which tracks employment trends, told The Wall Street Journal this week. 

But a Sydney-based law firm CEO warns firms should carefully analyse firm culture and structure before radically cutting pay to save money ahead of the half-year salary reviews. 

"If your culture is a high profit, high performance firm then your people may be more aligned with the concept of a direct correlation between their budget achievement and their salary," Bronwyn Pott, CEO of Swaab Attorneys, told The New Lawyer.

"By the same token, your staff could be a bit miffed if partners were taking super profits as recently as last year, and now that things have turned, the staff that contributed to those profits are being asked to share the pain," she said.

Law firms globally have been experimenting with ways to cut costs. From the four day working weeks implemented by UK firms Norton Rose, Mills & Reeve and Charles Russell, to the mass redundancies implemented by a number of Australian law firms, including Blake Dawson, Minter Ellison, Deacons and Corrs Chambers Westgarth, firms are making efforts to overhaul the balance sheets in the global downturn. 

Other firms have announced pay freezes, which many lawyers have expected amidst a global downturn anyway. Mallesons Stephen Jaques, Corrs, Clayton Utz, Allens Arthur Robinson and Freehills have all confirmed lawyers would not be handed pay rises in this next pay revue. 

But when it comes to the choice between redundancies and pay cuts, firms are now choosing the latter in the hope that it will better position the firm for when the economy picks up again. 

But challenges exist in asking staff to take a pay cut, said Pott. She argues that a blanket cut should not be considered. "The challenge around asking staff to take a pay cut across the board is that not all areas of firm are quiet. Some are very busy, [including] insolvency, litigation, infrastructure," she said. 

"Others have fallen off a cliff, [including] securitised lending, and professional staff can't necessarily transfer between the two easily."

Firms need to balance keeping lawyers on with the problem that they may have no work to do. Before cutting salaries and making redundancies, firms should look at offering retraining, said Pott. 

"One of the biggest challenges you have is keeping your professional staff engaged. No one wants to sit around with nothing to do. If there is genuinely no work and you have exhausted all the options of offering early sabbaticals, asking staff to take leave, then your only option (apart from redundancy) is to ask staff if they are interested in retraining," she said. 

She acknowledges, however, that when a principal area of law has disappeared, and the rest of the firm is down on targets, "there may not be the revenue to invest in that level of support".