The average pay increase for U.S. workers in 2007 was 3.9 percent higher than 2006, and 2006 was 3.8 percent greater than 2005. Projections indicate that the increases in the coming 12 month period will be in the same range. We tested this by calling a dozen large law firms around the country and heard a very consistent 3 ½ to 4 ½ percent projection for the next round of increases for staff. 

But as good as these numbers sound to law firm CFOs as they prepare the budget, they are causing some real problems for COOs and HR Directors. We are hearing from our clients that the highly publicized increases in Associate starting salaries, together with the hallway conversations among partners complaining about associate pay hikes, are causing higher than normal expectations among staff members, particularly the most valuable assistants and paralegals. According to one executive director, “The staff hears about the firm having a record year and then paying starting associates $160,000 a year…they expect big pay increases, too. Four percent doesn’t cut it.” One CHRO sent us a Dilbert cartoon in which Catbert, the evil HR Director, says to the pointy haired boss, “Bad news, the employees aren’t buying the intangible benefits story any more.”

The result is turnover and more of it. Secretaries who are looking at $2000 representing a “best in class” pay raise are finding that the firm across the street is offering a $5000 increase as the starting salary. Law firms are reacting in two ways. Some believe that the intangible and cultural benefits do count and the answer is in alternative workstyles and professional development opportunities. Others suggest that high attrition is a fact of life and the answer is to use technology and procedures to minimize the impact of turnover. 

What’s your take on this issue? Drop us a reply email and we’ll pass along the reactions next month.