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Salary hikes risking profitability: expert

Salary hikes risking profitability: expert

USING FINANCIAL incentives to attract talent could prove a risky strategy if the legal market contracts, warns an expert. Stephen Mayson, one of the first UK specialist consultants in law…

USING FINANCIAL incentives to attract talent could prove a risky strategy if the legal market contracts, warns an expert.

Stephen Mayson, one of the first UK specialist consultants in law offices and director of the Legal Services Policy Institute at the College of Law in England and Wales, was in Australia last week for the World Masters Law Firm Management seminar in Melbourne.

In an interview with Lawyers Weekly Mayson warned that while financial incentives were useful in a buoyant economy, large salary hikes could see costs blowout in relation to productivity in the event the market dampens.

“Certainly UK firms generally posted some of the best results ever in 2006—07. But I wonder how sustainable they will be if profitability suffers because the market slows down and these associate salary hikes we’ve seen take a toll. What effect will that have internally as law firms focus on associate productivity and begin to wonder if some of these trade-offs that they’ve offered can be afforded?,” he said.

Mayson said the salary increases of around 25 per cent enjoyed by associates in the UK this year could be jeopardising firms’ future profitability.

“I think they have the potential to backfire and the real crunch I suppose is whether in order to have the talent you have to offer those packages and therefore it’s medium- to long-term profitability that suffers,” he said.

Mayson said firms needed to be smarter about their recruitment and retention philosophies, in particular to secure generation Y talent.

“There is a generation Y issue and working people hard, paying them well, and giving them a route to partnership is not sustainable business model. And it’s right that firms think in more rounded terms.

“My sense is [generation Y] want access to opportunities. So things like secondments, the ability to be located in different parts of the country or the world, opportunities for personal development — things that in the long run will have a financial return personally and for the firm, but not necessarily things that have to be regarded as current-year financial trade-off,” he said.

Mayson said that US firm Chapman & Cutler’s recent decision to allow associates to choose between top pay and fixed hours was not particularly creative.

“Giving a choice between extra time off and higher pay is a very short-term financial trade off. Giving a choice between time-off and funded education isn’t. I guess it’s being more imaginative in what somebody can get out of the firm other than that trade off between time put in and money taken out,” he said.

Mayson also said that firms need to adopt a broader definition of “talent” and reward a wider base of staff accordingly.

“Historically [the definition of talent] has tended to focus on the technical legal component of being a lawyer, and now it has to extend to the non-legal elements that lawyers do — such as business development, case management, delegation, supervision, profile raising; in a sense doing the things that a business person would do — alongside being a technically very competent lawyer,” he said.

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