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The big salary freeze

The big salary freeze

A number of firms have implemented salary freezes and battened down the payroll hatches to contain costs in the face of the economic downturn. Craig Donaldson looks at the latest trends in legal…

A number of firms have implemented salary freezes and battened down the payroll hatches to contain costs in the face of the economic downturn. Craig Donaldson looks at the latest trends in legal salaries and what they mean for lawyers.

While Clayton Utz has previously confirmed a salary freeze and Minter Ellison has said employees will not receive a pay rise this year, except for exceptional performance, one firm that has gone against the grain is Blake Dawson, where about 30 per cent of its lawyers have received a pay increase since 1 July.

Helen McKenzie, deputy managing partner, says this figure factors in promotions, but that overall there has been an average drop of 10 to 12 per cent in compensation across the board when factoring in the firm's performance reward program against the backdrop of the economic downturn.

Because less than a third of lawyers received a pay increase, McKenzie says the firm has also used its non-financial rewards and recognition scheme to recognise strong contributions from staff.

"We were pretty upfront about what our approach would be and we told everybody that there would not be a salary freeze and that there would be increases and bonuses for our high-performing people," she says.

Measuring the impact

Not all lawyers are happy about salary freezes. Mahlab Recruitment's 2009 salary survey has found that 69 per cent of lawyers were not satisfied with their salary review, while 35 per cent said they believe there has been a greater focus on their performance review this year and partner stress levels have soared.

"I think the general sense is that people understand these are difficult times and people appreciate the firm is doing a range of things to respond to the current environment," says Allens' Drinnan. "Obviously, people do not want a freeze, but we have worked hard to explain what we are doing in response to the downturn and I think people appreciate that."

McKenzie says there has been no discernable impact at Blake Dawson. The firm conducts a staff engagement survey every year, and the most recent one actually found a marginal increase in engagement. "Our workplace is picking up and I think there is a reasonably resilient and confident mood around - our pipeline is looking pretty good, so the outlook is pretty positive," she says.

"We are focused, as you have to be, on continuing to actively retain our quality people. Retention is still important, but we're not facing the same pressure from competitors."

Bennett says morale has been "very good" at Freehills, which is undertaking an engagement survey in about a month.

"We've been absolutely clear in sticking to our values and involving our people every step of the way," he says. "Partners will see a fall in their levels of income, just as average employees have seen their salaries frozen, but if there is an upswing next year we have said that partners will share that with the staff on an equitable basis."

Staff turnover is also down among the top-tiers, as the economic downturn has reduced job opportunities both locally and overseas, with lawyers bunkering down to focus on their own job security.

"We have seen a reduction in legal staff turnover," says Milliner. "Previously lawyers would be leaving to work overseas (in London) and as in-house counsel. The current economic conditions have resulted in a slowdown in movements to the UK."

Waiting for the thaw

There is still no certainty about the economic outlook for Australia, and law firms are erring strongly on the conservative side when it comes to estimating how long salary freezes may last. The law also tends to be a lag indicator when it comes to economic conditions, and as such, Bennett says the first two quarters of the current financial year will be important. "We are holding up relatively well as we go into this financial year, so these six months through to Christmas - and particularly September to December - will be critical for us," he says.

"We will review salaries in July 2010 and take into account the market and how we are positioned. However, that doesn't automatically mean there will be increases," he says.

Allens is taking a "wait and see" approach and Drinnan says the firm will make a decision at the appropriate time, while Mallesons' decision to freeze salaries is subject to a review on 31 December 2009 if the firm is performing on or above budget for the 09/10 financial year, according to Milliner. "It is too early to say what our position will be at this time or for salaries for 1 July 2010," he says.

Importantly, he says it is unlikely that remuneration will bounce back to the levels of increases seen by law firms leading up to this downturn.

"Remuneration is likely to take much broader shape, with firms being more creative in how they remunerate lawyers," he says, with a focus on achieving the right the mix of fixed versus variable pay and ensuring that the firm continues to remunerate based on the level of experience and/or the capability required for the type of work coming through.

From the recruitment trenches

Stuart Ablethorpe, director of Hudson Legal, says that while wages generally haven't fallen in the past 12 months, many firms have implemented pay freezes which have halted the strong remuneration growth seen in recent years. Furthermore, fewer and less generous bonuses are being paid, and for those lawyers looking to change roles, he says relocation payments and "sign-on" bonuses are much harder to come by.

Ronita Jamnadas, manager of Michael Page Legal, says the salaries on offer in private practice are more conservative because of the budgetary restraints that have resulted from the economic downturn. "This represents a turnaround from previous years in which salaries were on the rise in areas of demand such as corporate and M&A," she says.

"It is a challenging environment in which people are working hard without the financial rewards of previous years - not just in legal but across all professional occupation groups. Having said that, most lawyers appreciate the bigger picture and accept their salaries will be reduced in the current economic climate."

Lisa Gazis, managing director (NSW) for Mahlab Recruitment, says it is unlikely there will be much salary movement this year. "Employers will remain cautious and will manage salaries and overheads very carefully for the next 12 months," she says.

"The June/July 2010 reviews are likely to be positive and reflect salary growth, but it is still too soon to suggest what the percentage growth may be and whether, if at all, salary increases will return to previous boom levels."

Overall, Ablethorpe says, there is still a shortage of quality candidates, and when the economy turns around, the competition among firms for good lawyers should see pay freezes overturned pretty quickly with a return to strong remuneration growth. "We don't know when the economy will turn, but positive signs are beginning to emerge across Australia," he says

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