Retention rates: Winning the war of attrition
2 June 2014
19 November 2013
27 May 2014
2 June 2014
6 June 2014
With high training costs, retaining the best newly qualifieds makes good business sense. But why are some firms considerably better at it than others?
The retention and attrition model in law firms has functioned along much the same lines for decades: retain as many newly qualifieds (NQs) as the market needs; maintain the pyramid by hiring laterally along with some strategic managing out; and hope that the best of the bunch stick around to make partner.
But with mounting training costs, an increasingly complex combination of factors drawing on the associate pool, and partnership not being the carrot it once was, the old model is looking rusty.
The cost of training
The first main point of attrition is at NQ level. This is also the point where most attention is focused, due to the widespread reporting of retention rates.
Calculating the exact cost of training up a new lawyer is difficult, as there are a number of variables to take into account, but it is undeniably expensive.
For example, as of 2013 Allen & Overy (A&O) was paying its trainees £83,000 in base salary over the course of their two-year training contract. But this is only part of the story, since it also pays future joiners’ law school fees and maintenance.
These days, firms like to boast that half their intake hails from a non-law background, but non-law students come at a premium, since GDL fees will also have to be stumped up. A magic circle trainee who completed both the conversion course and the LPC in London has had at least £100,000 thrown at them in fees, salary and maintenance by the time they qualify. And that does not include the additional costs of the graduate marketing machine – networking evenings, sponsored law society hoodies, glossy brochures, law fair attendance, not forgetting branded mugs.
Nor does it account for the significant amount of partner time that is poured into mentoring and hand-holding once successful candidates eventually join.
Opinions differ on the grand total. A recruiting partner at one firm estimates a trainee costs about £150,000, taking into account all the costs involved.
But another says the old adage that trainees cost £150,000 is overdone, while a third puts the price of producing one junior lawyer at precisely double, at £300,000.
Yet despite the costs, the head of recruitment at one large London firm insists firms do not lose money on trainees.
“Believe it or not, there are still clients willing to pay for trainees to do disclosure. Unquestionably, some clients won’t do that and, indeed, will request free secondees. But if you target five and a half hours a day you will still make money while they’re here. Yes, it is expensive, but even if you add in recruitment you will probably still break even.”
Nevertheless, the amount spent is a quite chunky commitment for a firm to make just to break even, especially given that the type of work trainees are typically staffed on could be done by an experienced paralegal for £20,000 a year. “If we lose a trainee on qualification, that is a blow,” accepts one training partner. The money poured into training, however, is less of an issue than the non-financial investment that is made in training new lawyers – the time and effort spent introducing them to the firm’s way of doing things and getting them involved in client relationships goes to waste.
A certain amount of attrition at the NQ stage is to be expected, of course. At the beginning, all trainees think they are going to be at their firm forever. Inevitably, that does not happen.
A few are managed out. Others depart for personal reasons. But the chief reason NQs leave the firm that trained them is to get into the area of practice they want, or to upgrade to a ‘better’ firm.
Upgrading is on the rise at the moment. As the market improves, people who had a training contract at a respected firm – but not as good as what they had been aiming for – now find themselves able to move up a tier, to the silver circle, US firms or the magic circle.
Colin Loth, director of legal recruitment at Robert Walters, also sees NQs becoming more picky about which practice areas they are qualifying into.
“In 2011/12, if you were offered a NQ role, more often than not you would take it. Now more are looking to move to find a role in their preferred practice area.”
Some firms unquestionably do better than others when it comes to attrition at NQ level. Slaughter and May, for example, consistently outperforms its blue-blood rivals. In fact, in the nine retention rounds since spring 2010, it has kept on 91 per cent of its qualifiers (see table below).
In terms of the wider market, none of these figures are embarrassing – the average percentage of trainees kept on at the firm that trained them in a normal year is around 80 per cent – but when a firm has a consistently poor retention rate over a number of years it may be a sign of a basic problem with the model. And more to the point, it costs.
Slaughters’ ability consistently to keep on more than 90 per cent of its qualifiers is an anomaly among large firms. It manages the feat due to number of factors. First, it takes on fewer trainees in the first place. Even pre-recession it was recruiting 90 per year compared to A&O’s 120.
Second, the firm is, in the words of one recruiter, “extremely effective at propaganda”. In other words, Slaughters does a very good job of persuading its trainees that they are at the best firm and there is nowhere else they might want to go. More importantly, because Slaughters likes its lawyers to be generalists, a relatively junior associate gains a wider breadth of experience than they might gain elsewhere, clearly an attractive proposition.
Mapping the model
The attrition equation
As a rule, it is rare to see NQs or 1PQEs walk out of a firm unless it is for an equally rare stellar opportunity at another firm. One-year PQE is a very tough level at which to move, as lawyers at that level are not NQs who can be moulded, nor are they experienced enough to get work done really efficiently.
Instead, two years PQE is when the attrition model typically begins to kick in, with most attrition across firms happening at 2 to 5PQE, although this varies from firm to firm. This is the period at which associates are most desirable, and have the most options available to them. They do not have to be trained, they are productive fee generators, but they are not yet earning big bucks.
Their shelf life is short, however. If associates have not moved on by 4 or 5PQE they will have missed the optimum window for moving and may have to wait another two or three years until they become desirable again. Senior associates are also in demand, but the opportunities available to them are far more limited than at 2 to 4PQE level. To give one example, “we rarely find a US firm willing to hire someone more than four years qualified,” says a recruiter. “They are just not interested”.
American firms in London do not want too many senior people in the business who are not partners, while UK firms have a little more
capacity to absorb senior associates.
The rate at which attrition happens – and needs to be happening – is generally agreed to be around 15 to 20 per cent per year across all staff. That 20 per cent only governs natural attrition, and leaves aside any figures produced as a result of managing out individuals or mass redundancies.
Looking at the data provided by Withers, Eversheds and DAC Beachcroft (see tables 1, 2 and 3 below), we can see that this 15 to 20 per cent figure broadly correlates with actual lawyer turnover.
Of course, the model never works flawlessly: individuals have their own reasons for staying or moving on and the human factor ensures that in some class years attrition will be higher than in others. This explains why we see in Withers’ class of 16 NQs from 2010, only six are still with the firm, as opposed to the 10 who should be still there according to the mathematical equation.
Withers has a relatively small trainee intake, so the more former lawyers are retained at other points will easily sort out the attrition problem of the 2010 NQs, as long as one department has not suffered particularly badly.
With larger intakes, the problem of over-attrition is not so easy to rectify. Take Berwin Leighton Paisner’s (BLP) intake of 2011, when 32 former trainees were retained as NQs (see table 4). After one year of attrition, 16 lawyers remain. According to the 20 per cent rule, there should be 25 or 26 remaining, meaning BLP has shedded 50 per cent rather than 20 per cent of its intake.
Whether it will have to begin a lateral hire spree at the junior end of the associate ranks depends on the level of attrition in previous years, for which The Lawyer does not have data, and how many of the next intakes down the line decide to leave the firm at the 2 to 3PQE mark.
Of course, too little attrition brings its own problems, requiring action from firms. One example is Clifford Chance’s decision in March 2012 to enter into redundancy consultation with 13 City associates from its ranks, all from its capital markets and finance practices. The firm said the proposed redundancies mirrored a drop in its attrition rate and pointed to the fact that a new batch of NQs and trainees were set to join imminently, swelling the junior end of the workforce.
The lack of attrition at Clifford Chance can be explained by the tail end of the recession. In 2012, while work levels had not returned to pre-recession levels, the City was beginning to sense a recovery. It was not that Clifford Chance’s associates had too little to do but that they had clung on to the firm, partly because there were fewer opportunities to move and partly because of the psychological impact a recession has: a workforce longs to feel secure and overstays its welcome.
Overcrowding at the senior associate level is common to many firms, even without the psychological and practical effects of a recession.
One source at a global firm points to Slaughters’ practice of actively pruning its workforce to maintain its pyramid structure. It’s up or out, with a tap on the shoulder at 5PQE if you are not going to make the grade. Slaughters is not alone in that practice, and firms that do not take the same tack can end up with an anvil, not a pyramid.
What are your associates thinking?
Dissatisfaction in private practice
The recession may have made lawyers cling on to their firm, hoping to weather the storm, but this does not equate to genuine loyalty to a firm. The twin effects of the recession on firms – squeezed revenues and redundancies – affect lawyers at all levels. Trainees fear for their positions after qualification, partners watch as their profits takes a tumble, but associates are stuck in the middle, doing the grunt work at every hour of the day and night while – in their view – being beasted by partners.
“The incessant drive for profit among the partnership does not make a firm a happy place to be,” says one recruiter specialising in associate placement. “There is less loyalty to the firm among associates than there once was.”
Seeing their friends not getting jobs on qualification and older lawyers being made redundant adds to this growing dissatisfaction.
Lawyer2B’s recent survey on stress in the workplace paints a vivid picture of this no-man’s-land in which associates can find themselves. Summarised, the results show:
l Associates of all levels were more likely to answer that their work was affecting their personal lives, with more than 50 per cent answering that this was a major cause of stress for them, compared to around 40 per cent of partners and trainees.
l They were also the group most likely to say that they suffered due to overly demanding clients, with around 45 per cent of 4PQE+ associates listing this as a problem, compared to 35 per cent of partners.
l Interestingly, while associates were not the group who suffered most from pressure to meet billing targets, nor from difficult and unpleasant superiors, around one third of associates listed both these factors as a chief cause of pressure, while neither partners nor trainees suffered much from both causes.
l Looking at the most common cause of stress – too much work and too little time to do it in – nearly as many associates as trainees report feeling overworked. Nearly 80 per cent of trainees fall into this category, compared to 75 per cent of junior associates, with senior associates falling somewhere in between. Just over 50 per cent of partners feel the same way.
The millennial generation and the prospect of partnership
The most recent generation to enter the workforce is often characterised by its desire for flexibility, Autonomy and a degree of expectation teetering on narcissism. But how differently does the junior end of the legal workforce really think? Does the millennial generation lust after the most ‘establishment’ prize of all, that of partnership?
The answer: it’s complicated. Unsurprisingly, given the emotional factors at work in the battle for partnership, trainee and associate attitudes paint a mixed picture. However, one key theme emerges from those involved in the recruitment and development of trainees and associates: partnership, while not judged to be totally undesirable, has definitely lost its lustre.
The fact that the pressure on partners has increased makes partnership less of a carrot than it might have previously been. Magic circle workloads and the need for the mid tier to generate work means that partners continue working hard as the decades go by, while the pressure continues relentlessly.
The lack of security at partnership level has also not been lost on the junior ranks, with the awareness that partnership is no longer a job for life filtering down.
What’s more, this lack of security does not just exist at a select few firms, notorious for a harsh performance management culture. Consequently, although making partner is still intrinsically appealing to some junior lawyers, there is much less sense than there was just a decade ago that partnership is what every junior member of the firms should be striving for.
With the increase of pressure and lack of job security, the benefits of partnership lie in its prestige and financial reward.
Whether those financial rewards are worth it depends on the individual associate. But it is worth bearing in mind the words of one recruiter. “Partnership is not the carrot it once was for a large percentage of the people I am talking to,” he says. “It is a different world now and associates are unwilling to make the sacrifices. I think firms are going to start having a problem with that in five years’ time.”
Among those who decide that they do want to chase partnership, there has been a shift, noted by graduate recruitment managers, in the way that junior lawyers approach trying to make partner.
Increasingly, it has become accepted wisdom among junior associates that if you want to get on the partnership track, you are probably better off going somewhere new while you are still relatively junior but have racked up some experience. By doing this, you are able to start again, in terms of your credibility, rather than coming up organically through the ranks trailed by your younger self’s mistakes.
And so the attrition model mutates once more.
Where are associates going?
Leaving private practice to go in-house has long been touted as the dream for those not on track for partnership.
“We have lost many of our best associates to in-house roles,” says one City partner. “It’s now seen as not only a credible alternative to private practice, but for many people a better alternative.”
But is the dream really all that it is cracked up to be?
Recruiters may well say that lawyers are approaching them for more commercially-focused roles and that the in-house option is always oversubscribed, but once former private practice associates bag their dream in-house job, it sometimes does not take long for things to sour.
The choice to go in-house chiefly happens at two key levels. The first is when a lawyer has long nursed a desire to go in-house, racks up the relevant experience in private practice, until at least two years PQE, and then makes their move.
The second is at around the 6PQE mark, when salaries start to stagnate – unless they have been a lucky recipient of an early invitation to partnership.
However, recruitment professionals report a general trend, which is becoming more common among the top 50 firms, of lawyers returning to their private practice roots, reporting frozen salaries and worse work/life balance at the apparently hallowed altar of in-house.
“In-house is no longer seen as a cushy nine to five job,” says a graduate recruitment manager. “In-house teams are having to do more before pushing work out to private practice.”
Also feeding on the associate ranks are international networks. Networks typically start demanding associates at around 2PQE, although some NQs will also qualify into overseas offices.
However, this sort of attrition has a shelf life. Before too long, NQs and juniors will start clamouring to return to the London office, aware that they can’t be out of the game for too long, adding to the complications relating to the once-simple attrition pyramid.
The return of the golden hello?
You would be forgiven for thinking that the golden hello had died with the career of Fred the Shred, such was its demise as the death knoll of the recession struck. But it seems that as the work returns to the City, the golden hello might be experiencing a renaissance.
One prime example came earlier this year when White & Case lured private equity associates from Linklaters, with promises of £40,000 sign-up fees compensating said associates for losing out on their Linklaters bonuses. The US outfit managed to recruit four associates, of a wish list of up to 10, to join
former Linklaters power duo Ian Bagshaw and Richard Youle.
Recruiters paint a mixed picture on this front, though some say that they have seen a return of the golden hello in the past four to five months. Sums may not rival the £40k White & Case handshake, but the practice is, in some firms at least, beginning to return.
As transactional work hots up, firms are looking for all the associate talent they can find, having chosen not to allow NQs to qualify into those areas during the recession.
However, as one recruiter points out, paying new joiners a bonus is not always the long term solution to building a strong team. “If you are at a firm and learn that the three new joiners in your team have all had a signing on bonus, then you are going to be miffed,” he says.
And so the attrition returns.