The way firms set assistant pay doesn't work

It's ironic but strangely familiar that, as the number of jobs lost in the UK legal services market passes 1,000, firms are trying to claw back costs put into their business through inflation-busting pay-rises only a year before. Familiar, of course, because this is largely what happened in 2002 and early 2003, when law firms slashed jobs only a year after similar rises.

Clearly, a sizeable flaw has worked its way into the labour market for junior lawyers, and it relates mainly to the lag in setting wages. The model goes roughly like this: work levels increase and partner profits rise. Firms, constrained from easily expanding, work their assistants harder. Pretty soon you have irritated assistants and rising attrition rates so firms respond by raising salaries sharply. The deal cycle being what it is, one year isn't enough, so a second round of pay rises are dished out the following year. But, because firms have delayed for so long, these latter rises kick in at the point when the economy is turning. You could even make a decent case that the second consecutive year of big pay rises for lawyers is a handy indicator of when the economy has reached the peak of bull-market excess. With higher rates locked into, practices then come under pressure as the cycle turns. Which brings you back to job cuts and the likelihood that law firms will leave the pay bands untouched for years to recoup the outlay before the whole cycle starts up again.

The problem is not that pay rises are ill-conceived in themselves, it is that they come too late in the cycle to do what they are supposed to. They are then also too inflexible to cope meaningfully with shifts in the market. In response, this downturn will probably see some firms follow Norton Rose's lead and move further from the banded associate 'lockstep' to put more emphasis on individual merit.

But the reality is that such moves have been faltering and look set to remain so. The lack of progress is due to a lack of consensus of over which of two conflicting concepts firms are attempting to deal with. Is it rewarding individual performance on one hand or offering assistants a meaningful stake in the firm's profitability on the other? Surprisingly, more than six years since law firms last had to cut staff, no-one has come up with a resolution to that conflict or even much certainty over what goals they are trying to achieve with remuneration policies. In essence, law firms know the current system doesn't really work but no- one knows what to put in its place. Meanwhile, those cuts keep coming…