Pay hikes are the sugar rush of the HR world
6 November 2005
No fee-earner in their right mind is going to say they don’t want the sort of pay increases that have recently been announced by certain firms. We could all do with a little extra money. But in firing the opening salvos in the latest round of knee-jerk pay hikes, firms are storing up ‘double-trouble’ for themselves.
In the first instance, there is a very real, obvious – and ongoing - cost. Hiking pay is a battle that no firm (especially now the US firms in London have become such a competitive factor) can actually win. Your increase might set the pace for a month or two, but your rivals will certainly make sure that any competitive advantage that you might have secured doesn’t last. Before long, firms will again be paying the same as their competitors just to keep up. They’re then back to square one, except that profitability is down and/or client bill-out rates are up. They could of course seek to reduce pay at a later date but the last few firms that tried that quickly found their fee-earners voting with their feet. Whichever way you cut it, it’s a lose-lose situation.
All of which might be considered a price worth paying if pay increases actually worked. But all the empirical evidence is clear that they just don’t. And this is the second part of the ‘double-trouble’. Data collected by both Couraud Consulting and by law firms themselves, suggests that the kind of salary increases we’re talking about (ie unilateral hikes as opposed to year-on-year incremental increases) don’t improve either fee-earner retention or, in anything but a fleeting way, overall morale. They are the equivalent of a sugar rush: an initially sensational high swiftly followed by the stark realisation that nothing fundamental has actually changed. If anything, things can feel a little worse. And next time you want a high, you need more sugar, just to get you to the level you first started at……
Firms make the mistake of attempting to deal with the manifestation of the problem rather than the causes. The ‘throw money at it’ mentality is crying out to be updated by a calmer, more sophisticated response: investigate and decide. Firms need to understand what the real causes of departures and/or discontent are. Each firm has its own dynamic, its own set of issues and problems. Where clients approach us, we work with them to develop bespoke human capital audits which access these hard to reach issues, drilling down beyond classic ‘surveys’ and publicity-driven exercises. These human capital audits offer an in-depth and objective strategic analysis of the firm’s only real asset: its people. In management consultant jargon, it is this type of third party-led exercise which enables us to co-develop with our clients ‘fences’ to put at the top of the cliff whilst other firms are still sending ‘ambulances’ to the bottom of that same cliff, at great expense. The nature of those ‘fences’, proactive strategic HR measures, depends entirely on the nature and extent of the issues identified. However, having conducted a whole host of such human capital audits across the profession, there are very clear general trends in the market we see over and again.
Interestingly, and this surprises many of our clients, ‘lifestyle’ or ‘work-life balance’ is not usually one of these trends. Leaving aside the misnomer of the ‘work-life balance’ (because work is at least a part of life – treating the two as separate is bound to end in tears), this is important. It exposes another genuine misapprehension in the market – that the reason that so many lawyers are unhappy is all about hours. Now no lawyer of course wants to work every weekend for 6 months non-stop. But this issue has been thrown way out of proportion by sensational, facile press headlines egged on by partners seeking excuses for their firms’ abominable retention rates. The kind of person most law firms are attracting into their ranks is the kind of person who associates hard work with success. People are, by and large, ready for the cut and thrust and plain, old-fashioned elbow grease that makes law firms tick. Further, lawyers know that they are not alone: even the briefest of glances at the hours worked by comparable professionals - doctors, management consultants, accountants, civil servants and the like - shows that. We all work hard these days and we accept it. So ‘lifestyle’ is important, but it’s nowhere near as important as some would have us believe.
Instead, our work with firms of very different sizes and levels of profitability demonstrates that all too often the absence of development and effective management are the true causes of the challenges that law firms face. Increasingly, individuals define themselves by reference to factors other than material wealth alone. Personal growth and development have become equally, if not more, important factors. Over and above purely financial reward there is the ‘psychological contract’. Too often in the law, that is being breached. All of us in the profession see the results of this every day - lawyers jumping from one top ten firm to another in the quest for ‘something different’, lawyers leaving the City to go to smaller firms or in house and lawyers leaving the law altogether to join an entirely different profession; for less money. The common driver for the decisions of these individuals is not, by definition, salary but instead the search for somewhere to acquire broader knowledge, responsibility and experience. So continuing to throw money at the problem in the way of ever higher salaries is both expensive and very risky, particularly in an environment where the increase cannot so easily be passed on to the consumer.
Corporations such as Microsoft, Vodafone and Asda have been very successfully recruiting – and retaining and inspiring - the brightest and the best for some time. However, they do not, on the whole, pay anything like the salaries that are offered by the big City law firms. Instead, having recognised the crucial importance of people and people strategy, these corporations set about promoting cultures where people are genuinely valued, motivated and incentivised around a set of common core beliefs. Success is achieved not through any other overtly financial incentives (although these of course remain important), but by instilling in people a sense of belonging, an individual and personal identification with the overall objectives of the entire business. Indeed, one can pick any number of high-performing organisations – private or public – and spot the one key thread that ties each of them together: through sophisticated staff development, a sense of ownership of the success of the enterprise, at every level.
Law firms have a lot of catching up to do in this respect. Where development programmes do exist, many take a fairly clumsy, one-size-fits-all approach. True development, the type that brings about the very personal sense of progress through belonging, is all about individuation. This is because each person’s appreciation of development is slightly different. In order to remain loyal, committed and engaged, we need development that works for us, that engages us in the firm. That is not to say that each person – at least up until a certain level – shouldn’t be exposed to different aspects of law firm operations and management, just that firms need to tailor particular programmes to particular people to bring out their particular strengths.
Development has for too long been seen by law firms as at best a necessary evil, a fashionable addendum to the real business of lawyering, and at worst an overtly extravagant cost. On reflection, however, developing your staff so that they are engaged in, and inspired by, your business is nowhere near as overtly extravagant as rushing to hike pay. And unlike the extra 20% in the pay packet, it might just work...
Roly Walter is a Director at Couraud Consulting, People Strategy Experts
Tel: 0207 851 4652