What private practice lawyers earn might leave many reeling, but experts say the golden days of automatic 15% per annum pay rises are about to end. Law firms are being forced to wind back their pay increases to align themselves with their corporate counterparts in terms of pay (corporate firms pay less to their in-house lawyers, relative to law firms).

Lawyers are increasingly likely to do as well working as general counsel in a corporation as they are working in even the top Australian law firms, sources told Crikey. The traditional pay gap between in-house and private practice is rapidly closing. In many cases, it has closed altogether.

A new report in the United Kingdom, the Towers Watson Legal Salary Report, found that while junior private practice lawyers in the UK earned a salary about a third more than their in-house counterparts, in-house lawyers could earn up to 11% more once bonuses and other benefits were taken into account.

Australian private practice lawyers with two to six years’ post-qualification experience (PQE) can now expect to earn the same amount if they move in-house. Katherine Sampson, managing director of Mahlab Recruitment in Victoria, told Crikey: “It’s very rare for a lawyer at that level to have to take a drop in pay if they move to corporate. Companies recruiting at that level are pretty sophisticated buyers. They’re probably adding lawyers to an existing legal team, and they want the best.”

Gavin Sharp, the regional director of Hays in Brisbane, agrees corporates are paying more than they were even a few years ago. “Over the last three years we have definitely seen an increase in the salaries offered for in-house roles. In 2010 a Brisbane in-house lawyer with three years PQE could expect to earn $75,000 to $95,000, but in the salary report we’re about to publish this year we’re expecting the salary range to be around $80,000 to $105,000.”

But the real change is happening in year-on-year pay increases. Corporates can match law firms in salary, but they only offer an average 4% a year pay increase to lawyers at the two to six PQE level. However, corporations often offer bonuses and other rewards, as well as a reported better work-life balance.

Law firms, meanwhile, are more thrifty with their pay increases. In 2010, a Mahlab Recruitment salary survey revealed that, on average, in-house lawyers nationally received a salary increase of 4% per year. A Sydney-based general counsel earned between $170,000 and $600,000 in 2010. This matched what private practice lawyers and senior associates earned, but the latter received increases of 12-14% every year.

“Firms are looking at overall contribution rather than automatically increasingly people’s pay because they have another year under their belt.”

At the partnership level, corporates cannot compete. While partners in private practice may only see pay increases of 4-6%, in a top-tier firm they earn about $1.3 million. If partners at that level find a rare senior general counsel role in a major corporation, they will likely take a pay cut, said Sampson.

But this year, Sampson predicts, law firms are expected to calibrate their pay increases, aligning them with their corporate counterparts for lawyers, senior associates and junior partners.

“The market has quietened down,” said Sampson, believing Australian law firms will move away from the traditional “PQE model” of pay reviews where lawyers receive promotions and pay increases according to how many years’ experience they have. “Every year you become a more senior lawyer and get a pay increase automatically. But I think this is disappearing, slowly. More firms are looking at the value of their individual; what they are worth to the firm. Firms are looking at overall contribution rather than automatically increasingly people’s pay because they have another year under their belt,” she said.

The boom times have been over for a while for corporations, which swiftly calibrated salaries and spending accordingly in a tighter market. But law firms are slower creatures — where once they could compete aggressively on salary, they now have to get more value for what they pay.

Moving in-house is more about the pleasure than the pay for many candidates, Sharp argues. “Traditionally private practice is all about your billings, and at the junior level you can expect to do very long hours and work extremely hard. But in the corporate setting it’s more about the opportunity to be part of an operational management team, and people like the idea of the working conditions and the interest in that type of work rather than be a consultant.”

A March 2013 study conducted by the New South Wales Law Society — Inside In-house Legal Teams — confirms that of those who moved from private practice to in-house, only 27%  did so for a higher salary.

Peter Fray

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