UK law firms are confidently reporting strong growth for 2018-19, riding the wave of Brexit uncertainty, as opposed to planning for a storm. With this growth will come the inevitable increase in hiring activity, yet with a shrinking pool of young talent and an increasing employee focus on work/life balance, how can law firms attract - and retain - the best? Firms are also confronting the challenges of an ageing population, namely higher pension contributions and rising benefit costs and complexities. In short, confidence in the ongoing strength, and relevance, of your firm’s reward package and employee benefits programme is essential.
Two thirds of partners of the UK’s leading law firms expect their firm’s revenue to increase in 2018, according to a recent survey in Legal Week reported on by Zest Recruitment Consultancy. Despite nationwide uncertainty surrounding Brexit and the outlook for the UK economy in general, 49% think the financial outlook for 2018 is better than 2017, and an additional 17% expect it to be significantly better. The survey also revealed that partners expect merger and acquisition (M&A), banking and finance, and dispute resolution, to be the busiest practice areas in the coming year.
Meanwhile, although business confidence is high, commentators predict more M&A activity amongst legal firms themselves, particularly in the UK’s small to mid-tier market.
30% of partners expect to see more recruitment in 2018, while 31% of partners also expect US firms to continue their expansion into London and hiring more staff in the next twelve months.
Pay isn’t everything
It is widely documented and understood that the proportion of those of a working age in the UK is shrinking, whilst those of a pensionable age is increasing. In the race to hire the best talent from this everdecreasing pool, it is worth noting that the changing expectations of employees - in a nutshell, pay is no longer the only concern.
A recent survey of legal professionals by specialist recruitment firm Major, Lindsey & Africa found that more than half of respondents would trade in a portion of their compensation for another benefit, with more time off cited by most, followed by a more flexible work schedule and reduced billable hours. When the results of the survey are analysed by size of firm, more respondents from small to medium sized firms (up to 2,000 lawyers) would be willing to trade compensation, than those from larger firms
Although salary remains arguably the biggest pull for the current working generation, for the law industry’s future talent, pay is now considered alongside the value that prospective employers attach to diversity and inclusion, work-life balance and support for stress and mental health. Today’s newly qualified graduates and junior lawyers will be making their career move decisions on these criteria, not just base line salary expectations. Recruitment sites, such as Glassdoor, only increase pressure on firms to concentrate on policies around these aspects of employment contracts.
Transparency in all these areas will increasingly become the norm thanks to a combination of elements:
- Gender pay reporting. A number of legal firms reported early, revealing significant pay gaps. The underlying causes are numerous but perhaps the most prevalent point is the lack of women holding senior industry positions. Despite the fact that there are more women working in the legal industry than ever before, female legal professionals still only represent 25% of partners in leading UK law firms and just under 19% in Magic Circle firms. Those companies that have reported also include their plans for change, including the establishing of gender equality working groups with input at Board level.
- Mental health. 70% of qualified junior lawyers in the UK report that they are ‘regularly’ stressed as a result of work and 21% ‘occasionally’ stressed, according to a Law Society survey. Stigma is still a huge issue in an industry where people are expected to cope with long hours and huge workloads. The Prime Minister last year committed to help reduce the stigma in the UK surrounding mental health, culminating in the governmentcommissioned independent Stephenson / Farmer Review, highlighting how employers can better support employees, along with the pledge to deliver a national mental health literacy campaign this Autumn. We expect corporate positions on mental health support to become increasingly reported in the press.
- Corporate governance reform. Whilst the finer details are yet to be ironed out, reform will inevitably necessitate more effective engagement between parties and employees in future. As stated in the government’s response to the consultation (August 2017) a new set of principles are being established with the aim of strengthening the voice of employees and other non-shareholder interests. These aspects are highlighted as important components of running a sustainable business.
- Human capital reporting. There is mounting pressure for firms to report publicly on their approach to employee wellbeing and mental health. The Chartered Institute for Personnel and Development (CIPD) last year called on the government to introduce mandatory human capital reporting standards. Some firms are taking a pre-emptive approach. An article in The Telegraph reports on research by London startup Soma Analytics, which found that FTSE 100 businesses that used the words ‘mental health’ or ‘well-being’ more than twice in their annual reports enjoyed a mean profit of £1.4tn, three times that (at £563bn for the year) of those that did not employ such phrases.
Review your offering
Ensuring a competitive reward package and employee benefits strategy that helps attract and retain talent can be a challenge. It must:
- keep pace with employee and business needs
- have a strong governance framework that delivers robust pension scheme management
- ensure that any insured arrangements are both compliant and fit for purpose
There are plenty of ways to make your reward packages more competitive:
The Lifetime Allowance (LTA) - LTA is due to increase to £1.03m in the 2018/19 tax year and many employers are not being given sufficient information when transferring Registered Schemes to Excepted Group Life policies in respect of how the policy ought to be structured. The firm also needs to consider how much risk it is willing to take and whether to apply the change only to certain individual employee contracts for whom the LTA is most relevant, or all staff.
Gender pay gap reporting - If the firm has not done so already, consider going the extra mile by the next reporting deadline and extend reporting to the broader diversity and inclusion programme: ethnicity and disability. The Equality and Human Rights Commission made suggestions to this effect recently in its report Fair Opportunities for all: A strategy to reduce pay gaps in Britain.
Pension contribution increases - The first minimum pension contribution increase recently kicked in. It now stands at 5% (3% employee / 2% employer) and is set to increase to 8% by April 2019. Encourage employees to think about what they want their retirement to look like, how much annual income is required to support that vision, and consider what the firm can do to support them in terms of financial contributions.
Pension contribution limits - Employees trust you to help them make the right financial decisions so it is important that the firm provides clear guidance on the potential pitfalls of pension contribution limits. Providing clearer communications can help instill trust whilst also removing potential financial stressors.
Flexi-access drawdown 2017/18 - Over 55-year-olds are entitled to draw a pension whilst still working via flexi-access drawdown. However, they can only put up to £4,000pa into their pension if they are doing this, reduced from a £10,000pa limit in 2016/17.
The Tapered Annual Allowance 2017/18 - The standard annual pension contribution limit stands at £40,000. This will be reduced by £1 for every £2 of ‘adjusted income’ over £150,000 in a tax year, to a floor of £10,000. Individuals must also retrospectively calculate their pension contributions for 2016/17 to ensure completing accurate tax returns.
Where to begin?
Properly structured risk and benefit audits can prove essential, ensuring relevance and compliance, not to mention cost savings. In Gallagher’s experience, as high as 95% of all risk audits end up saving a company significant sums in terms of identifying and mitigating potential tax and uninsured liabilities.
Meanwhile, ensuring the firm’s benefits strategy is keeping pace with the shifting environment requires a combination of workforce insights, plus strategic consultancy to identify barriers to engagement with employees and ways to tackle these barriers.
At a time when recruitment and retention is becoming ever more challenging, it pays to get - and stay - on trend. Get in touch with a Gallagher specialist to see how we can assist.