When you employ law firm employees, the question often arises about what is the kind of raise employees should be given. Oftentimes, the question can arise at the end of the year because many employees expect yearly raises.
The question of what is the average raise is problematic. Law employees often have expectations. Many of these expectations are not realistic when looking at national data and the finances of the firm.
It is true as well that while clients want to pay less in fees, employees want to make more. This is a catch-22 that is almost impossible to resolve.
Many of these employees who also want raises do not meet their billable hour or accounts receivables numbers, either. Still, if they do not get what they seek, many will be upset. Some will just grovel about it. Others may leave.
To know whether your raises are within the norm, looking at national averages can be helpful. Recent studies show that the average raise is in the 2.6 to 4.7 percent range. While this might not warm the hearts of some employees, the numbers make sense when you really think about it.
After all, how does a company generate more money to pay raises larger than that? To pay even 2.6 to 4.7 percent raises, they have to minimally increase the company’s net income by the same 2.6 to 4.7 percent. That’s not easy for most law firms. Some law firms might have net income that is steady (versus increasing). Some law firms could even have down years when it drops. For those firms, how do they give any raises?
Expenses also go up yearly in most law firms. For example, rent can increase. Overhead can go up as other outside vendors raise their rates and charge more on a yearly basis. Thus, to give a 2.6 to 4.7 percent raise, the net income of the firm probably needs to exceed 2.6 to 4.7 percent growth. To give bigger raises than 2.6 to 4.7 percent, the net income of the firm would need to follow the growth of the increased salaries (at the same rate at least).
In the end, you have to try to set reasonable expectations within your law firm. You also cannot raise salaries above a number where the firm will not be able to or will struggle to pay it. If you do, you will put the firm in a bad financial footing that can ultimately impact all the employees if the firm’s obligations cannot be met.
If some employees choose to leave, or grovel about it, it sort of goes with the territory of having a law firm. Try as you may, this is an area where it’s almost impossible to make everybody happy.
If you have any thoughts, feel free to share them below.