By Tim Skipper, founder, Totum
As we enter into another year, law firms will be hoping to build on what was a steady performance in 2012. It may not have been a year to break salary records, but Totum’s 2013 ‘Law Firm Salary and Benefits Benchmarking Survey Business Support Roles’ shows modest pay rises across HR, finance, IT, and marketing and business development (BD) functions. It also indicates cautious confidence among firms for growth in the year ahead.
The legal sector continues to prove itself resilient in these uncertain times. Of 77 International, City, National, Regional and US firms that participated in this our eighth annual benchmarking survey, only 2% froze business support salaries in 2012 (down from 6% in 2011).
The year ahead takes a more positive slant too, with 20% of respondent firms expecting to increase salaries by more than 3% in 2013 (up from 14% last year). In addition, 11% of those offering bonus schemes (80% of respondent firms) expect them to rise this year.
At a time of ongoing cost-cutting across business sectors, these pay packages send a signal: that business services professionals have proved their value and are understood to play a critical role in ensuring law firm sustainability and growth.
But as pay rises remain fairly marginal between competitors, firms may have to think creatively to both attract and retain the best talent. No wonder then, that respondent law firms listed employee engagement/retention and training and development at the top of their strategic HR priorities for the year ahead, with recruitment falling not far behind.
Comparing the functions
Finance continues to pip other functions to the post when it comes to salaries, with finance directors taking home on average £164,625, compared to £158,754 in HR, £151,720 in marketing and £113,785 in IT. And the league table looks likely to remain the same while firms continue to award just modest salary rises across all functions.
In HR, a decent 9% increase in director-level salaries in London since 2010/11 is balanced out by only marginal increases across other seniority levels and regions in the same period. But what is striking is the significant difference between HR salaries in London and outside the capital. London HR directors, for instance, are earning on average 56% more than HR directors elsewhere. This compares to a difference of 30% in IT, 32% in finance and 31% in marketing. This may be down to the fact that London firms tend to be larger, with more people management and recruitment responsibilities involved in effective management, especially where these firms are increasingly pushing out internationally or globally. Or it might suggest that a salary catch up is due at director level among non-London firms in the year or two ahead.
Certainly, salary levels do not necessarily relate to the size of department being managed. Finance, for example, is one of the bigger functions and tends to command the higher salaries. But IT is actually the same size among larger respondent firms, with one finance or IT employee to every eight fee earners in the top 20 firms (followed by marketing with a ratio of 1:14 and HR with 1:15). Despite this, the survey shows IT trailing on the most senior salary scale, with IT directors paid between 37 and 70% less than directors in other functions in the top-20 firms.
This might suggest that while operationally critical, IT remains strategically lower on the list of priorities, while finance remains vital to maintaining growth in this difficult business climate. This idea is supported by the fact that average IT salaries compete far better with other functions at ‘head of’ levels and below. IT director salaries may rise, however, as markets improve and firms have more money to invest in systems that can make a radical difference to business performance and client service.
Interestingly, salaries between the top 20 and smaller firms of less than 100 fee earners come much closer together at the more junior levels of all functions. The survey shows that in marketing, smaller firms are even paying a little more on average at manager level than top-20 firms – a striking point given the differences in size of the firms concerned.
This may have something to do with the competitive environment. The Legal Services Act (LSA) is expected to particularly impact smaller firms as new market entrants compete for clients in this more consumer-facing space. Our survey showed, for instance, that while uncertainty remains over the impact of the LSA, a significant 42% of respondents think it will involve some or a fundamental amount of change in their firm. These firms are more likely to invest in marketing and business development to help differentiate their services and pitch for work effectively.
These salary similarities may also be a sign that larger firms are proving more successful at creating cost-efficiencies at more junior levels. This argument is supported by the survey showing that outsourcing is on the rise – particularly across travel, secretarial and administration. It may be that larger firms have been better at exploiting such opportunities to minimise costs.
There is certainly something interesting to note at the lower end of the scale, because at the top end, the scene is very different. Here, top-20 firms seem to leave most other firms in the shade – offering considerably higher salaries at director and ‘head of’ levels, compared to top 21-50 firms and below. In HR for instance, directors at top-20 firms are earning no less than 84% more than those at top 21-50 firms, although there is then only a 4% difference between the top 21-50 firms and the smaller firms of less than 100 fee earners.
Indeed across a few functions/seniority levels, there seems to be something of a salary tussle going on between the top 21-50 firms and the 50+ firms. This reinforces the sense that the leading firms have pulled away from the pack in recent years, leaving mid-tier firms to compete ever more fiercely to maintain some share of the pie.
As firms look to the year ahead, they are likely to continue to look to each other to maintain appropriate salary levels, at least meeting the offers of their peers. But firms that really want to stand out may have to do more to attract and retain talent – if not by means of a considerably higher salary, then through other creative rewards and incentives.
Perks of the job
In this sense, firms continue to offer a broad range of benefits to business support employees, from the more obvious pension and life assurance through to gym membership and Blackberrys. The survey shows an increasing number of firms offering a combination of flexible benefits and salary sacrifice schemes (53% in 2012 compared with 41% the previous year) – giving employees greater opportunity to buy additional holiday and/or pension contributions.
Bonuses too remain highly popular, with 80% of respondent firms operating bonus schemes, and 11% of those expecting them to increase this year.
So far so good. But there are signs of cost cutting across many benefits over the past year or two – particularly in areas such as travel allowance and subsidised meals. Sabbaticals and reduced working days per week have also dropped off, although this may be more to do with the changing climate in which there is actually more work to go around. Sabbaticals and the like were used at the height of the recession by several firms as a temporary strategy to ease costs.
In addition, though, fewer firms offered relocation packages to all regions in 2012, except to the Far East/Asia where a steady 75% of respondent firms continue to offer them. This could either reflect the magnitude of such a move to the other side of the world, or could also indicate the priority now given to this region. It is interesting, for instance, that relocation packages have particularly dropped off to Western Europe – from 65 to 31% in 2012/13. This suggests more than cost-cutting, as firms shift their growth strategies away from a troubled Eurozone.
Flexible working is offered by the majority firms, with no less than 100% of respondent firms claiming to offer part-time options. Take up remains low, however, with only 12% of London employees and 14% of those outside the capital taking up part-time work in the past year. The processes may be in place but it seems the law firm culture still lags. Employees are clearly not encouraged to think of alternative ways of working – which in this modern age may be to the detriment of firms wanting to retain talent.
Time to plan ahead
Overall the past year appears to be one of steady performance for law firms. Modest pay rises across functions suggest a positive foundation for future growth, but firms will have to be careful. Turnover levels across functions have shifted this year: marketing halved its turnover rate in 2012/13, an impressive improvement in retention rates in this typically fluid sector. But with 50 per cent of respondent firms expecting to recruit into their marketing teams in the year ahead, opportunities for talented marketers will rise. And they will go to those firms that can offer the best incentives to move. Cutting benefits and merely maintaining salaries may not be enough to either keep or attract the best.
At the same time turnover rates in HR doubled, and finance and IT both saw rises in turnover in the past year. Standing still may no longer be sufficient for those firms that are really serious about meeting their strategic priorities to engage and retain talent.
In the year ahead, it will be critical for firms to review their pay and reward strategies and consider just how they are going to continue to support their strategic priorities. In a relatively level playing field – particularly in the competitive mid-tier – there may be everything to play for.