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Staff turnover of once-mobile junior lawyers is set to fall in response to the leaner commercial environment but associates aiming to stay put are likely to face tougher performance reviews.

That is the message coming from the latest Legal Week Big Question survey, which found that nearly two thirds of respondents (62%) believe that current market conditions will see staff turnover fall, while a further 5% said it would fall ‘drastically’. In contrast, only 13% thought that staff turnover was set to rise.

“When the economy is down there is a natural and understandable tendency to ensure that your firm is running as efficiently as possible,” said Taylor Wessing managing partner Michael Frawley (pictured right). “In these circumstances I suspect retention rates will drop in order to reduce costs and maintain profitability.”

The City firm historically has an annual staff turnover rate of 15%, according to Frawley, putting the firm in line with many of its competitors.

Berwin Leighton Paisner managing partner Neville Eisenberg (pictured below left) said it remained important for law firms to ensure that they are retaining their staff through the economic cycle. He commented: “We invest a lot into our associates and work hard to keep them.”

The survey found a broad consensus over an appropriate rate for law firms to aim for annual staff turnover, with 40% claiming that law firms should aim for a rate of 5%-10%, while a further 40% cited 10%-15%.

Seventy percent view the current level of turnover of legal staff at their firm as ‘about right’, with 16% stating it is ‘too high’ and 9% believing it is ‘too low’.

There is also speculation that turnover rates are likely to drop as vacancies with banks are sparse and associates are less likely to take up in-house positions as a career move.

“In the case of big firms, they have been losing people to financial institutions,” said Hughes-Castell director Scott Gibson. “That [rate] will reduce because financial institutionsare not hiring.”

However, while more assistants are expected to stay put in response to the uncertain economic climate, there is widespread expectation that law firms will be raising the bar in performance reviews after a period in which less able junior lawyers were tolerated.

Seventy-eight percent of respondents believe that City firms will put in place tougher performance reviews in response to less buoyant market conditions. In addition, a further 15% said reviews would become ‘very much’ tougher as firms are ‘carrying too many low-performers’. Only 7% believe that reviews would remain unchanged or that law firms would seek to improve retention.

Commenting on performance reviews, Frawley told Legal Week: “When there is a credit crunch people are less charitable and more likely to make tougher decisions in order to maintain performance.

“We introduced a rigorous review process three years ago and we will not need to modify it to take into account any downturn in the market.”

The survey, based on the responses of 153 partners, found mixed views on whether law firms generally seek to mask economically-driven cuts on performance grounds.

Thirty-nine percent thought that performance problems were used as an excuse for exiting staff due to falling activity levels, while 11% thought firms ‘often’ used it as a technique and 41% thought it was ‘sometimes’ used to cover up for falling activity levels.

One responding partner commented: “When all is going well, there is limited pressure on headcount. When things go bad, practice group heads are asked to look at headcount. Inevitably, they take a Darwinian approach and seek to lose the poorest performers, while keeping those they know will perform in an upturn.

“The poorest performers may well be asked to leave as work drops off, but their performance is not an excuse; it is the reason why they are going.”

The poll comes as a string of major City law firms have announced reviews of their associate salary bands, with Linklaters and Clifford Chance among those confirming modest rises.

Allen & Overy and Herbert Smith have left their rates unchanged, though assistants typically still see annual rises through the assistant track as they gain more experience.

Talkback: Now have your say on the findings by clicking here.

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