Legal salaries are slowing down

While there may still be some pay increases for legal professionals in 2023, salaries will almost certainly not continue to rise at the same pace as last year — with drops in pay also possible, say recruiters.

This article was originally featured on 2 February in Lawyers Weekly.

As reported earlier this week by Lawyers Weekly’s sister brand, HR Leader, December saw the lowest monthly rise in advertised salary growth since pay packets went up during April-May 2022, with salary growth climbing 0.3 per cent month on month since then.

KPMG Australia senior economist Sarah Hunter recently told LinkedIn Australia that while wage growth will continue to accelerate this year as pay rises under enterprise agreements come in, the labour shortage is starting to ease.

“With pressure now starting to ease and migration flows returning, the outsized pay increases that some workers were able to bargain for in 2022 are likely now in the past,” she advised.

In light of this, Lawyers Weekly approached a handful of legal recruiters around the country to see if they’re seeing such market forces impacting the upward trajectory of lawyers’ pay packets.

Beacon Legal director Alex Gotch said that while he expects salaries to continue rising at BigLaw firms in 2023, it will be at a slower rate than “during the boom period” of 2022.

“Australia continues to experience a shortage of quality lawyers, especially within the top-tier, international and large mid-tier firms, and the gap between supply and demand remains high,” he explained.

“This trend directly impacts lawyers’ salaries, as law firms remain engaged in a competitive recruitment market and use salary and sign-on bonuses as a differentiator, to both attract and retain the best talent.”

If the supply and demand gap is reduced by less outward migration and more inward migration of the top legal talent, Mr Gotch advised, “this may cause the rate of wage increases to stagnate, although we do not expect that to have a material effect during 2023”.

Nrol managing director Jesse Shah said he does agree that significant pay rises for lawyers are “now beginning to drop”, identifying additional factors playing into this.

“Employers and recruiters are now seeing more candidates apply or be open to a move, [and as a result,] the panic hiring has stopped. Employees are also realising with the large salaries came more work, responsibilities and expectations,” he outlined.

While demand and urgency have “dropped off” since last year — with salaries having peaked in October — there are still some “wild salaries” being secured across the board, Naiman Clarke managing director Elivra Naiman mused.

“The issue is likely to be that, whilst the heat has come out of the labour market, the quality of candidates is still not there en masse, which tends to translate to top candidates still demanding high wages and conditions,” she detailed.

“I suspect that the other issue will be that, with salary growth last year as well as inflation and the cost of mortgages going up significantly, most lawyers won’t want to go ‘backwards’ in salary from what they are on — which will set a higher than usual benchmark.”

This is likely, Ms Clarke deduced, to result in salaries going up a couple of percentage points to account for inflationary and other pressures, but she added that “we are unlikely to see the 15-40 per cent salary increases some candidates were getting last year”.

Another likely factor, Empire Group director Alison Crowther said, is that law firms “have had enough” of the high salary expectations.

“They have had more performance management since taking on candidates that are earning beyond their capability. The equation just doesn’t work if the candidates can’t deliver,” she submitted.

“I think we see a slowing of high salaries paid, and hopefully, this will filter to the candidates and their expectations.”

However, this is not to say that there won’t be some practice areas, or legal roles, that will not continue to see elevated pay packets this year.

Mr Shah pointed out: “Although the significant rise is settling, there are still some areas of law — corporate, banking, construction and personal injury/insurance that I am still seeing high rises being paid, as there is a significant talent shortage. I am also seeing this with legal support positions such as career legal secretaries, assistants and career paralegals, as there is a significant skill shortage in this area.”