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THE ECONOMICS OF ATTRITION
by Neil Oakes, FMRC Legal
As Australia marches towards full employment, retention has grown beyond the firm and manifested as an industry issue. Valuable, knowledge-based workers are highly mobile across diverse industries. As the labour tightens, many Australian firms are experiencing a values shift. We no longer aspire to the "protestant work ethic". The popular press regularly reports on lawyer burnout and depression (AFR, Lawyers Weekly, BRW and others). Work / life balance policies have found their way into the HRM strategies of most major law firms, yet I regularly encounter partners who simply assume that all workers are somehow intrinsically loyal and driven to work productively, seeing turnover not as an indication of organisational dysfunctionality but as an annoying curiosity or poor decision making on the part of the leaver. In some industries, such as the legal profession, high attrition may be the new norm. If this is indeed the case, firms should move quickly to develop a specified retention policy while simultaneously factoring an attrition rate of around 30% into their strategic and succession planning.
The attrition of employed lawyers from Australian legal firms is having a significant, negative economic impact. Attrition is a costly business. Several large law firms spend around $2 million per year on placement agent fees alone, replacing lost talent. One top-tier firm estimates that, taking all losses into account, it costs $300,000 to lose and replace a skilled, mid-careeer lawyer.
Law Firms in Australia employ 36,124 solicitors and 57,628 other staff. Annual turnover in 2002 was in excess of $10.6 billion (ABS, 2002). Lawyers account for 1.1% of the Australian GDP, compared to 0.8% for accounting firms (ABS, 2002). The demographic of the Australian profession is changing rapidly. In NSW alone, the number of lawyers has risen by 36% over seven years, from 14,819 solicitors in 1999 to 20,200 in 2005 (NSW Law Society, 2006). The growth in the number of solicitors is polarised at either end of the age spectrum.
The following graph shows the composition of the NSW profession by age category from 1999 to 2005 (New South Wales Law Society data 2006):
In due course the profession will be dominated by partners approaching retirement and young lawyers. If firms are to continue to prosper they must embrace strategies that minimise lawyer turnover and engage the changing demographic.
Why do people currently enjoying top market compensation, training, mentoring, engaging work cultures, high quality challenging work and a variety of ancillary benefits leave an organisation? This is the question asked by all managers of Australian legal firms that have invested heavily in contemporary HRM strategies. A very good starting point in the search for an answer to this question may be to determine why many defy the trend and stay. Instead of relying on exit interviews, why not ask your stars why they are happy to stay in the firm? This information can aid in the development of a retention policy.
Worker turnover has been studied extensively. Since the early 1900's there have been literally hundreds of qualitative and quantitative investigations on turnover. Many studies seek to measure the correlation between a variable, some antecedent of the decision to quit and turnover, deducting that better management of the antecedent, to extent that it is controllable by an organisation will reduce turnover. All variables are inclined to ebb and flow in significance and their relationship with other variables as economies cycle and social values change.
There are three distinct groups of employees: The Baby Boomers, Generation X and Generation Y - each group possesses unique characteristics that affect work ethic and relationships. These differences result in five areas of potential work strife surrounding differing expectations, distinct work ethics, deep-seeded attitudes opposing perspectives an diverse motivators. Goal orientation and work environment fit are essential for the satisfaction and retention of Generation Y employees. Baby Boomers are more attracted to relationship fit.
A typical partner in a large Australian law firm is male, working full-time and was employed by the firm of which they are now an owner for several years prior to partnership. 62% of junior employed solicitors, working in large and mid-tier firms are now female (FMRC Legal, 2006). 24% of senior associates are part time. The average rate of attrition for solicitors in Australasian law firms during 2006 was in excess of 36% (FMRC Legal, 2006). The profession's failure to adapt to the needs of the changing professional demographic is likely to contribute to this turnover.
In a study of American accountants, Moyes et al (2006) found both age and gender significant to job fulfilment, treatment by peers and supervisors and promotion opportunities. Gorman (2006) found that promotions in law firms are less likely to go to women when the work involves greater problem viability and strategic uncertainty. The statistics are, at best, a curiosity. Women account for 51% of the population and close to 46% of the labour force but their representation at more senior corporate levels is negligible by comparison. This imbalance is by no means new news. The direct impact of the apparent "glass ceiling" on turnover in the Australian legal profession should be the subject of further research.
Employee engagement is of primary concern to HR managers in all major Australian law firms. The creation of a focused, motivated and committed group of employed lawyers is a high ideal for many and the very raison d'etre for some. There seems to be little doubt that employee engagement mitigates the relationship between job satisfaction, intention to quit and organisational commitment. Several researchers have found that employee engagement is a useful predictor of desirable outcomes such as financial performance and organisational success as well as desirable employee outcomes.
In the legal profession there is little correlation between business success and turnover. There appears to be a curvilinear relationship between turnover and business failure and success, both being discernable antecedents of quits. People are highly employable if they are currently employed by top industry performers and are more likely to leave if they are employed by struggling firms.
Anecdotal evidence and research suggest that the management of attrition requires close attention to the following critical factors:
Firms wishing to prosper should ensure that partners and leaders have the requisite skill-set to deliver on these critical factors. We recommend implementing a specific retention policy. How this might be done will be the subject of my next article.
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