Owen: Cautious optimism
Law firms doubled their revenue growth in the last financial year as they prepared to reward staff with salary rises, research has found.
Accountancy firm Crowe said that, while aggregate revenue grew by 12%, twice as fast as the previous year, almost half of firms (45%) said they would increase staff salaries this financial year by over 7.5%.
Researchers based this year’s annual law firm benchmarking report on data from 50 City and regional law firms with year ends in March and April 2022.
Along with growth in revenue, profits per equity partner (PEP) increased by more than 10% at 36% of City firms and 29% of regional ones.
The mean PEP for City firms was just over £738,700, up from £640,700 in 2021, and £313,800 for regional firms, up from just under £300,000.
However, PEP fell at exactly a half of regional firms and a third of City firms.
Researchers said: “Stronger demand, coupled with efficiency and cost-cutting measures implemented throughout the pandemic period, has boosted year end profit pools for many.
“But as the sector got back to ‘business as usual’, some firms, mostly regional, found it harder to keep a lid on costs.”
There was an increase in staff numbers of 4.2% across all firms, coupled with average salary increases of around 5%, resulting in “a near 10% increase” in staff costs. City firms “experienced less salary pressure” than their regional counterparts.
Staff costs as a percentage of fee income fell slightly both for City firms, to just over 36%, and regional firms to 45%.
Looking at the current financial year, 45% of City firms and a quarter (26%) of regional firms said they were preparing to increase salaries by more than 7.5%.
From their recent recruitment experience, firms said the “main driver” by a long way was the baseline salary (70%), with less than half (48%) citing flexible working policies, 38% the firm’s culture and values and a third its brand and reputation.
A slender majority of firms reported that their teams were working away from the office more than half of the time, with City lawyers most likely to be working remotely. Almost a third (30%) of regional firms said their staff spent only a day a week out of the office.
Two-thirds of firms believed that remote working had a negative impact on the supervision of team members and three-quarters did not offer 100% remote working.
Average lock-up days by the end of the year fell slightly – from 130 to 123 for regional firms and 144 to 143 for City firms.
The proportion of firms working to improve their sustainability jumped from around half to 69%.
Nicky Owen, professional practices partner at Crowe, commented: “As various headwinds continue to impact the economy at large, the legal sector has again performed well, as evidenced by strong financial figures across most measures.
“Cautious optimism looks set to continue in 2023. However, the full impact of inflationary pressures and salary shifts may still be felt in the coming months, and the retention of key people has been identified as a core focus for management teams.”
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