Q1 Market Insight Legal

www.badenochandclark.com

Market insight

2015 Quarter 1

Legal

06 City practice

04 Introduction

08 In-house, financial services

10 In-house, commerce & industry

12 Regional

14 Locum

ContentsLegal

Page 4 0f 16 Market insight | Legal | Badenoch & Clark Market insight | Legal | Badenoch & Clark Page 5 0f 16

The professional recruitment market as a whole has continued the trend from the back end of last year by growing steadily in terms of absolute job numbers by between 5% and 12% so far this year; a good indicator of market sentiment.

We have also found in Q1 2015 versus the same period last year that firms are committed to hiring when they go to market, not just scoping out the possibilities. As you will see in our market breakdown of the legal sector, firms are now moving quickly to secure talent and are offering competitive packages up front to secure the best people.

From a candidate perspective the real change can be measured here by the number of ‘passive’ job seekers who will move for the right role. Over 52% of our permanent placements this year have been with passive job seekers, a sure sign of confidence returning to the market.

There may be some minor slow-downs in hiring during Easter and probably around election time but overall the indicators suggest that the recent upturn in confidence in hiring and moving will continue to improve through Q2 and beyond.

Guy EmmersonOperations Director

Introduction


City practice

45%of the top 200 un-merged law firms are considering a merger.

Market analysis

US firms reported strong results for 2014 in Q1 with significant increases in turnover: 33 % for Quinn Emanuel Urquhart & Sullivan; 9.5% for Sidley Austin and 14.3 % for Latham & Watkins. Latham also made up two partners in London, reflecting strong market confidence. Pillsbury Winthrop Shaw Pittman showed its belief in the London market by announcing that it plans to double its headcount during the next year.

The Magic Circle and Silver Circle continue to be instructed on big-ticket work, Slaughter and May, Freshfields Bruckhaus Deringer and Linklaters landed lead advisory roles on a multi-billion-dollar joint venture and asset swap between pharmaceutical giants GlaxoSmithKline (GSK) and Novartis, while Freshfields Bruckhaus Deringer, Clifford Chance and Norton Rose Fulbright have secured advisory roles on the proposed high profile £12.5bn acquisition of EE by BT.

Hiring activity

A number of firms have continued to make opportunistic hires, notably for private equity partners with portable followings. Stephen Davis moved from King & Wood Mallesons to Proskauer Rose in London, and was instructed by his long-standing client Lion Capital on its sale of outdoor retailer Cotswold. Elsewhere, Linklaters suffered from several raids at the hands of top-tier US firms; projects partners Matthew Hagopian and Manzer Ijaz moved to Milbank Tweed Hadley & Mccloy, while Matthew Elliot left for Kirkland & Ellis.

Pay rates/ salaries

We have seen firms make use of their merit-based pay structures to attract candidates, by making offers in the upper end of permissible scales to attract candidates to move. The other side of the coin is that associates in the same intake can see their pay rates diverge significantly after only a few years. Under Freshfields’ “Career Milestone” system it is possible for a two year PQE associate to earn £77,500 (even at the top of Career Milestone 1); meanwhile an associate at the top of Career Milestone 2 could reach £100,000. It can be very hard for perceived inferior associates to make up a pay (and internal perception) gap without moving firms.

With more firms opening and expanding existing regional offices, more of the work from City clients is being handled by regional lawyers at a lesser pay rate than their City based equivalents. London based roles are therefore increasingly attractive as the pay gap widens.

Challenges & outlook

Firms will be increasingly keen to seek out mergers and grow their international revenue such as the Dentons – Dacheng “combination”, which has created the largest legal entity in the world. A survey of UK top 200 firms by the Byfield Consultancy showed that Managing Partners of 45% of the firms which have not recently merged would consider a merger in the next two years.

The increased mobility of partners creates issues for associates who work with them, especially for junior associates where partners are either unable or unwilling to bring their entire team with them. This means that even associates who are not immediately looking to move are meeting with us to discuss “plan b”, to maximise their career prospects and progression.

In terms of associate hires, the busiest areas have continued to be real estate, finance, private equity and US securities.

Q1 saw transactional activity remain strong off the back of a very strong 2014, which had seen the annual turnover of UK law firms rise by 8.4%.


In-house, financial services

Market analysis

Having seen a strong positive sentiment return to the UK economy over the latter part of 2014, 2015 has started with a mixture of feeling ranging from the EY Item Club predicting that the UK is likely to suffer a slump in growth (anticipating 2.4%, well below the 3.1% growth expected) through to the British Chamber of Commerce suggesting that the UK will exceed its growth expectations.

It is highly likely that the economy will remain subdued as a result of the looming General Election, speculation about a referendum on the UK exiting the EU, and the impact of the ongoing crisis on the Eurozone.

The Organisation for Economic Co-operation and Development is expecting The Bank of England’s Monetary Policy Committee to raise interest rates in “mid-2015”. This has created a fear of the impact that a rise in interest rates will have on individuals and SMEs.

Pay rates / salaries

It continues to be difficult to clearly denote ‘market rate’ as salaries wildly differ across institutions and many longer term employees have yet to be aligned to their more recently hired peers.

As with previous quarters we have seen a slow and continued rise in base salaries being offered across the market as organisations look to incentivise candidates to join their teams and as a response to the increased base salaries being offered within the leading City law firms.

On the interim side, rates have remained steady across the quarter with niche roles continuing to offer day rates at £850+ but with c5 PQE lawyers remaining at the £600- 750 level.

Hiring activity

Following a particularly busy end to 2014, we started 2015 with strong market confidence. Both January and February proved much quieter than we had initially expected although it transpired to be the ‘calm before the storm’. March has seen a large number of new roles arising across the market, within asset management, investment banking, alternative finance, the insurance market, general commercial, corporate, general banking and trade finance, litigation, commodities, funds and regulatory across a number of PQE levels.

A large number of the new roles arising have been signed off as new head-count and this is a trend we have seen to continue throughout the last 6 months.


We are continuing to see candidates involved in multiple processes or receiving multiple offers with some organisations having run recruitment campaigns in a matter of weeks. The ability to move quickly is often a deciding factor in securing the best talent.

Badenoch & Clark is fortunate in having a dedicated head-hunting unit attached to the legal financial services team and as the general level of activity increases we are seeing that it is increasingly important to have access to passive job seekers and utilise this function on contingent, as well as search assignments.

It is highly likely that Quarter 2 will continue to be full of activity, especially as bonuses will have been banked and many candidates are seeking new opportunities. This will create teams that are still often understaffed necessitating replacement hires on top of the increased ‘new head count’ opportunities.

Many organisations have been taking the opportunity to explore 6 or 12 month Fixed Term Contract hires for newly created

vacancies to give them an opportunity to ‘try before you buy’ although this does significantly reduce the available talent pool.

Badenoch & Clark is fortunate in having a dedicated head-hunting unit attached to the legal financial services team


In-house, commerce & industry

Market analysis

In general, we have seen a positive start to the year for the in-house market. Whilst at the end of 2014 cost-saving was the agenda for many businesses, moving into 2015 we are seeing a lot of clients looking to expand their businesses both on a national and international scale. Naturally this will impact the workload of in-house legal functions, which are increasingly having the focus of their roles shift to providing commercial advice and driving businesses forward.

Within the technology space, the increased application of technology in financial services has pushed real growth within fintech, with start-ups continuing to pop up and more established enterprises looking to expand and capitalise upon the dotcom like boom of the fintech industry. Technology lawyers with a financial services background are likely to be in hot demand as this trend continues.


Recruitment processes throughout Q1 have highlighted that there seems to be some disparity between candidates’ salary expectations and clients’ budgets. One explanation is that many in-house hires are the first in a number of years, meaning budgets are being calculated in accordance with outdated market knowledge. As such we are having to manage expectations on behalf of our candidates, and clients are having to increase their budgets to secure the best candidates.

Hiring activity

Hiring activity has continued to increase as a whole across our in-house client base. We have also seen a rise in part-time permanent roles. The majority of new positions being created are of a strategic, commercial nature which is proving to be a real selling point for candidates looking to move out of private practice and into in-house roles. With the shift in the market and an increase in jobs meaning candidates can now afford to be pickier with the roles they apply for.

The construction market has maintained the upward curve from 2014 and there has been a surprise influx of demand in the New Year within the oil and gas industry, particularly with trading businesses.


Across the board we are expecting to see a continuous steady growth in hiring activity. High caliber candidates will continue to be sought after and clients are having to move quickly to keep candidates engaged and not lose them to other businesses that are able to turnaround their recruitment processes faster.

A further consideration is an increase in counter-offers from current employers trying to retain good employees. It is important to understand candidates’ motivations from the beginning of the job search to be able to foresee any potential issues with counter-offers. Clients need to make sure any offers they put to candidates will be in-line with their expectations to ensure they feel valued by their potential employer.

Within the Retail & FMCG industry, a shift in demand for IP and general commercial lawyers has taken the focus away from

commercial property which we were seeing at the tail-end of 2014.

The increase in permanent requirements has impacted the interim market. Far fewer immediately available candidates are available than in 2014, particularly at the 2- 6 PQE level.


Regional

Market analysis

2015 has got off to an outstanding start in the regions with a large number of firms continuing to expand. Consequently, there appears to be a lot of movement in the market with candidates feeling more confident than in previous years to seek new opportunities. Corporate and Commercial, Construction and Real Estate all remain very busy areas. It is anticipated that Residential Property will remain active throughout 2015 with the changes to SDLT and the pension freedom reforms coming into effect in early April, at the start of the 2015-16 tax year; this will provide people with the opportunity to invest to an even greater degree in real estate. Private client (Wills, Probate, Tax Planning and Trusts) has also been another area of law where we have seen continued growth over the last quarter.


Salaries have continued to rise in both Legal 500 and non- Legal 500 firms, with compensation reaching the highest level for a number of years. This is to a significant extent down to the fact candidates are becoming increasingly aware of ‘their worth’ in the market. Also, retention remains a key issue and therefore firms remain conscious that salaries must be competitive to avoid losing valuable employees.

A number of leading Legal 500 firms have carried out salary surveys this quarter to ensure they are in line with their competitors. We have also noticed an increase in the number of performance-related bonus schemes coming into force in non-Legal 500 firms as a tool to reward performance and avoid employees moving to larger firms with higher salaries.

Hiring activity

Hiring activity has reflected the market trends mentioned previously. Real Estate and Residential Property have been popular areas for recruitment as has Private Client with most firms looking for lawyers in the 2-5 PQE bracket. However, there remains a shortage of quality candidates in these high-demand areas, meaning that firms are struggling to fill vacancies as quickly as they would like. Therefore, firms are considering candidates with more - or less - PQE than their ideal candidate. Nevertheless, we have seen a notable increase in the number of candidates looking for new opportunities, as a result of greater confidence in the stability of the market.


One of the major concerns facing law firms continues to be the skill shortage in busy areas of law such as Real Estate and Residential Property. Good candidates are receiving multiple offers and counter offers, creating forever increasing competition in the market place. Firms now have little choice but to act promptly when making an offer, otherwise they risk losing the candidate to a competitor firm and also in making the offer attractive to ensure candidates are not counter-offered.

Smaller regional firms are also facing the pressure of national firms opening regional offices, enabling them to compete with regional firms on costs. The pressure on economies of scale will encourage more firms to merge, with Shakespears and SGH Matineau in talks to create a merged firm with combined revenues of over £75 million.

It is anticipated that Litigation may well take a hit over the coming months as a result of the controversial rises in court fees which

came into effect in March.

Corporate and Commercial, Construction and Real Estate all remain very busy areas

A number of leading Legal 500 firms have carried out salary surveys this quarter to ensure they are in line with their competitors


Locum

Market analysis

Throughout Q1 we have continued to see a buoyant market following the busiest prior six months the locum market has had in years. Private Client and Family roles have seen an increase in locum demand but Property, specifically Residential, remains the dominant area for locums. Firms are making advance bookings as they anticipate a very demanding summer in the Property Market.


To ensure candidates have full diaries for 2015, they are working for slightly reduced rates to ensure a strong pipeline of work. Job flow is still not as busy as summer 2014 when candidates were demanding higher pay rates. A lot of locums travel for work so accommodation costs are accounted for in charge rates. However board and lodgings are cheaper in winter months so rates are still remaining slightly lowered.

Hiring activity

As the market is busy and firms are expanding, the trend in hiring for Q1 has been locum cover until firms find ideal permanent staff replacements. We have also seen a rise in part-time locum cover as firms are getting increasingly busy. In a similar trend to Q4 of 2014, firms are looking to make repeat bookings for locums to ensure periods of high workload are covered. This enables locums to be more comfortable in their environment and to also be given more responsibility within firms. This is positive as it shows there is a consistency in workload.


There is still a lack of candidates, particularly in Private Client. The private practice locum market still remains busy and the outlook for firms using them is increasing. Firms are more confident in using locums for short term cover and more responsible roles but they would like references and proven track records from candidates’ previous firms. Solicitors are also moving into the locum market due to the frequency of roles and higher pay rates.

Firms are making advance bookings as they anticipate a very demanding summer in the property market Private Client and Family roles have seen an up turn in locum

demand but roles in Property, specifically Residential, remains the dominant area for locums.

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© Badenoch & Clark 2014. All right reserved. The information contained in this publication is intended for general purposes or guidance only. It does not purport to constitute professional advice. Badenoch & Clark accepts no liability for the accuracy of the contents or any opinions expressed herein.

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Recruiting & HR

Q1 Market Insight Legal