Aussie legal market sees slight rise in confidence but pay rises limited

A slight rise in business confidence and commercial activity in Australia looks set to thaw out pay freezes and potentially help stem the flow of partner exits that were the mark of the 2013/14 financial year.

A study from Australian legal recruiter Mahlab has found that while salary and bonus freezes imposed during the last financial year are being lifted, a slowdown in salary band increases for junior lawyers is continuing.

As reported by The Lawyer earlier this year, faced with weak business confidence and stalling M&A activity in 2013, firms such as King & Wood Mallesons (KWM) and Herbert Smith Freehills (HSF) froze salaries amid challenges to growing revenue (30 June 2014). While these freezes have since been lifted (23 May 2014), the Mahlab study found that large pay rises are being reserved for only particularly strong performers.

Katherine Sampson, managing director of Mahlab Recruitment, said: “The salary and bonus freezes of FY14 have lifted, however the slowdown on salary band increases continues. Forty-four per cent of firms surveyed increased their salary bands, compared to 50 per cent in 2013, 75 per cent in 2012 and 90 per cent in 2011.

“Generally only high performers have received sizeable increases, much to the disappointment of lawyers who have weathered the financial storm of recent years and were hoping for compensatory increases. Sixty-two per cent of private practice lawyers surveyed were not satisfied with the outcome of their salary review.”

The national average salary increase for the year was 3.8 per cent, up from 3.7 per cent the previous year. This means first-year associates at major firms in Sydney now typically earn A$81,000 (£44,618) before bonuses while their counterparts in Melbourne typically earn A$75,000. Associates at the senior end typically earn A$250,000 in Sydney and A$200,000 in Melbourne.

At small commercial firms the most junior lawyers earn an average of A$65,000 in Sydney and A$50,000 in Melbourne while for the most senior the figure is A$165,000 in both cities.

At the partner level, Mahlab found that while more partners were appointed in the last financial year than in the previous one, “the overall size of partnerships in the major law firms is on the downward trend”. This is in part down to partner departures and in part to it taking longer for lawyers to make partner.

“While some firms have experienced solid revenue growth, the challenges for partners remain, particularly in the major and mid firms,” said Sampson. “Partners continue to face pressure to maintain profitability as competition created by technology, alternative low-cost service providers and a slow-growth economy has meant a decline in demand for traditional legal services.”

Among the departures seen in the past year was a three-partner DLA Piper team in Sydney that left for HWL Ebsworth as well as DLA Piper’s former Australia chair and banking and finance head Tony Holland, who joined Gilbert & Tobin (31 October 2013).

KWM lost two IP partners to Minter Ellison in Sydney (6 February 2014) while its former global head of dispute resolution Beau Deleuil left to join Quinn Emanuel Urquhart & Sullivan in Sydney (4 December 2013) and former Australia managing partner Tony O’Malley, who left last June, recently launched a boutique in Sydney (8 May 2014).

Meanwhile, Allen & Overy’s Australian founding partner Grant Fuzi, who led the team of 14 Clayton Utz partners that set up the magic circle firm’s Sydney and Perth offices in 2010, has decided to leave the firm at the end of the year (13 June 2014).

Sampson said the trend for partner departures is likely to continue as firms seek to grow their salaried partner ranks and retain only top-performing partners.

“Equity partnerships are declining and being replaced with salaried partnerships now contingent upon billings,” she said. “The move to abandon the billable hour seems inevitable in reaction to these mounting pressures, as the profession acquiesces to the demands of a difficult market.”

Mahlab found that annual remuneration for partners in major and mid firms increased over the past year with those at the former taking home an average of A$1.38m in Sydney and A$1.33m in Melbourne while at the latter the respective figures are A$889,000 and A$835,000.