Latest news: Salaries flatline; Significant gender pay gap; Innovation spending pays off

Modest salary rises likely this year: ALPMA

Wages are starting to “flatline” across the legal sector, according to new research from the Australasian Legal Practice Management Association.

The findings suggest that workers can expect only modest salary increases this year. Two hundred and eighty-eight Australian law firms from across the country, employing 10,644 people, took part in the 2018 Australian Legal Industry Salary and HR Issues Survey, conducted by ALPMA. Consistent with low wages growth in the wider Australian economy, the research shows that the average increase in salaries across the legal industry has been 0.7 per cent, a four-year low.

“Most Australian law firms are predicting modest wage increases at CPI, with 28 per cent expected to negotiate with employees above CPI and a further 17 per cent expect to increase salaries for all employees between 3 to 5 per cent. While only 3 per cent of firms will freeze wages for all staff, 14 per cent expect to implement a limited freeze for some positions only,” says Dion Cusack, ALPMA President and Corporate Services Manager at K&L Gates. Key findings of the study include:

• almost 40 per cent of firms pay their lawyers and partners bonuses of more than 5 per cent of their base remuneration, with 15 per cent of salaried partners receiving bonuses worth more than 10 per cent. “To attract and retain staff in a market of stagnating wages, bonuses and other benefits are an important component of the remuneration package offered to key employees at Australian law firms,” Cusack says.
• there are positive signs that the legal employment market is growing, with 42 per cent of firms indicating that staff levels at their firm grew over the previous 12 months, and 53 per cent expecting to grow employment at their firm during the next 12 months. “These figures reflect national forecasts of growth in legal and professional services jobs over the next five years in Australia, with Victoria leading the way with 62 per cent of firms planning to increase staffing levels,” Cusack says.
• gender inequality remains an issue at Australian law firms. Despite the industry being dominated by females (67 per cent of all positions are held by women, including 58 per cent of lawyers), women continue to be significantly under-represented in law firm partner ranks and boardrooms. “While flexible work arrangements are on the rise, the research shows that only 32 per cent of firms offer parental leave entitlements over and above the government scheme, which is a real missed opportunity,” Cusack says. “Staggeringly, our research revealed that 44 per cent of respondents believe there is a gender pay gap issue in the industry, with only 7 per cent flagging this as an issue at their firm. There is a significant point of difference for firms who are addressing these figures and will likely benefit from a reduction in the average turnover figures.” Larger firms were significantly more likely to believe this was an industry-wide issue (71 per cent).

Gender pay gap put officially at 27 per cent

Men receive 27 per cent more than their female counterparts for the global mean average at equity partner level, according to findings from international market analysis firm Acritas.

The findings highlight that a gender pay gap still exists, with Acritas determining that the disparity was “a direct result of more extreme pay for men” after reviewing the responses from 828 ‘star’ lawyers in private practice. The median salary average showed a slightly smaller gap between men and women, at 19 per cent.

Acritas CEO Lisa Hart Shepherd comments: “It is astonishing to see such a large gender pay gap at equity partner level. For women that have achieved equity partner status, they should be facing a more equal playing field, but clearly this is not the case.”

Nevertheless, Acritas also uncovers considerations that do need reflection – that is, factors which are likely contributing to a legitimate gap in gender pay for equity partners include practice area and years of experience. “For example, the research shows a higher proportion of female equity partners specialise in labour and that labour equity partners are paid significantly less, regardless of their gender,” the report states. “Pay also increases with years of experience and Acritas’ data shows women equity partners have generally been partners for a shorter number of years.”

However, even normalising for these factors, Acritas confirmed a pay gap still exists. A female equity partner working in the same country and practice area, made partner in the same year could expect to earn $125,000 less than her male counterpart.

Innovation spending worth it, report suggests

Firms that invest in innovation can expect a handsome payoff, according to the Commonwealth Bank’s new CommBank Professional Services Business Insights Report. It reveals that law firms and institutions across professional services sectors are investing an average of $171,000 per annum for a return of $585,000.

Among the survey participants, 55 per cent of law firms are actively innovating, with 31 per cent of firms making improvements to their commitment to new innovative services.

“Accounting and legal firms are increasingly looking to move up the value chain, as outsourcing, automation and new business model competitors threaten to absorb the lower-value, high-volume activities that have traditionally generated so much of their revenue,” says CBA’s Marc Totaro.

On average, Australian firms across accounting, legal, IT services, management consulting, and engineering invested $171,000 on innovations in the year to date, far less than the national average spend of $300,000 across all Australian businesses. Despite the lower investment outlay, professional services firms are seeing revenue gains and cost reduction deliver an average uplift of $585,000 per firm, representing a return on investment multiple of 3.42 – far exceeding the national average of 1.97.

In addition to the financial return, almost half of innovation-active professional services firms surveyed rated better client outcomes (48 per cent) and greater efficiencies (46 per cent) as the top benefits of their innovation activity.