Extraordinary times call for extraordinary measures. Not a day passes without more news regarding the extremely difficult economic climate.
Our clients are facing business challenges the like of which have not been seen for generations.
For many businesses operating in this environment, holding salaries at their current levels for a year would hardly be considered a radical measure.
However, in a profession such as ours the news that a magic circle firm has frozen associate salaries is a big event. But should it be? A more realistic perspective is that our decision is a measured response to the need to hold down costs. We see our clients working hard to reduce their costs and they have a legitimate expectation that we will do the same. We have no doubt that revenue and profitability will decline over the coming year. As a consequence we need to adapt to these exceptionally difficult and different market conditions.
Over recent years the salary differential between the more junior associates and the most senior associates has become too compressed. We have seen substantial increases in the salaries of junior lawyers, whereas the salaries for the more senior lawyers have increased at a slower pace. The current market offers the opportunity to redress this, and it is an opportunity we should take.
In this context thoughtfully managing our single biggest variable cost, that of staff, is essential, and holding salaries at last years’ level is an appropriate and proportionate response to the current environment.
However, we still need to ensure that we reward performance. Those who contribute most to the success of organisations should see those efforts rewarded. So we shouldn’t allow newspaper headlines to scare us off from paying performance-related bonuses to those who deserve them. Many people have worked hard this year and contributed significantly and they should not be unduly penalised. They are being rewarded for their performances during this financial year, whereas our decision on salaries
will impact on the next financial year, when we expect the full force of the recession to be felt.
It was never going to be a popular decision to hold salaries. Communicating it early has been appreciated and many have acknowledged that they understand why the decision was made and that we are trying to manage our way carefully through next year. We’ve taken care to have face-to-face meetings to allow staff to air their views and ask questions. It is never the right thing to communicate difficult decisions and then retreat to the relative safety of one’s office.
Although the current news headlines relate to our decision on pay, this is a short-term measure we have taken to manage costs through the next financial year. We’re also intent on remaining focused on our long-term goals. We aim to continue to deliver the highest levels of client service. We want to continue to attract and retain the very best people and to reward them for high performance. We see the months ahead, difficult though they may be, as an opportunity to reinforce our culture and our values. It is when organisations are facing the most difficult challenges that their cultures and values are most tested.
It is also important that we ensure we maintain levels of work so that people are busy, engaged and motivated. We will take the opportunity to invest in training and development, making sure that our junior lawyers still get the right experiences that will allow them to grow professionally.
A focus on these three things – clients, costs and people – is the key to weathering the current storm. There will be challenges to overcome in the future, and it will require clear and decisive leadership to navigate through to calmer waters.
For more on the Freshfields pay freeze, read today’s feature.