Dancing to the war drums

By Colin White, managing director, Ortus Research

Annual salary increases and bonus awards have recently been announced by the majority of the big-money players in the City to massive trade-media interest. Just like last year, it leaves the majority of the legal profession and the public at large open-mouthed with disbelief at the enormous earnings potential of relatively inexperienced young professionals.

During the late 1990s, the dotcom boom exploded, making many millionaires in the legal and IT industry. The US firms awarded obscenely large salaries and six-figure bonuses, causing the UK elite to make unprecedented increases too. This had a trickle-down effect to the majority of law firms over a certain size all over the UK and beyond. The crash in 2001 arrested this trend for three years before the deep pockets of the US investment banks began to refill in 2004. With this money now pouring into the global economy, the best corporate and finance solicitors are back in demand, causing their demands to increase in tandem.

We are told that the reason for these pay awards is primarily to counter the problem of staff attrition, so it is perhaps ironic that evidence suggests this treatment, designed to attract and retain the best lawyers, amplifies the symptoms. As the majority of published research indicates, pay increases are an ineffective method of buying loyalty beyond the extremely short-term initial fillip. In the absence of effective alternatives, this annual event looks set to remain as regular and predictable as a Christmas pantomime.

Recent events at Allen & Overy became a very public admission from within the top tier that partnership is no longer considered a viable retention incentive for the majority of the younger lawyers in the largest firms. It also highlighted a truth that we all know about financial compensation being used as ‘sticking plaster’ solution to this retention challenge.

One City partner told me: “Many of us recognise that this exercise is futile, to a degree, but if we do not match the displays of our peers, we risk losing out so much in the short-term that we may struggle to recover to good health.” The problem created by this cycle is that it forces money to the fore for solicitors making career decisions and, as we all tend to live to our means, it effectively traps these individuals within that same cycle.

How do clients perceive this issue? Several in-house solicitors have expressed dismay at the rates they are being charged to finance this routine. One head of legal at a major financial institution said: “Sometimes I feel that the larger firms are complacent in the knowledge that our shareholders need to see a ‘large firm’ name on the annual reports and that we do not notice that increasingly inexperienced solicitors are doing our work for large fees.” While legal directors may not take dramatic action on this right now, it is clearly a source of frustration and perhaps sends an early signal of issues that will need to be addressed soon.

Young lawyers are ever more aware of their market value and, sometimes, this becomes exaggerated. This has been perpetuated not only by the annual war dance but also by the press and some within the recruitment industry. Constant attention with ‘surveys’ and trumpeted press releases, together with the modern human condition of consuming whatever we can, means that this will be a war of attrition. Unlike the annual pantomime, nobody is shouting “it’s behind you!” because it is very predictably ahead of us all again next year unless something different can be done to escape the spiral.

Colin White is managing director of Ortus Professional Search. He can be contacted at colin.white@ortussearch.com