Traditionally, G2 Legal Australian director Daniel Stirling explained, ESOPs have been reserved for those at senior levels of a law department, with such incentives tied to company performance and, quite commonly and usually, form part of the overall package along with salary, short-term incentives/annual bonus and other benefits.

The roles that are including ESOPs for more junior roles at present, Carlyle Kingswood Global director of in-house, legal and governance (Asia-Pacific region) Phillip Hunter pointed out, are paying lower base components.

This, he warned, is a “risky proposition” for candidates who might be looking to increase their immediate take-home pay.

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However, and whilst such incentives for more junior lawyers are “still fairly uncommon”, Mr Stirling said, he has “seen an increase” in the availability of such schemes.

This is particularly so, he said, in “more forward-thinking industries”, such as the tech sector.

“Other companies offer alternatives with the same aim in mind such as company profit share schemes and retention bonuses,” he said.

Impacts for legal recruitment

An increase in ESOPs, Mr Stirling said, is ultimately a good thing for the recruitment market in-house — alongside other longer-term incentives.

“When we are hiring for a role for a client, everyone is looking for a long-term fit and someone who can grow with the organisation. Any tool which assists in attracting and retaining the best talent can only benefit this,” he posited.

“Of course, an increase also means that an expectation of this type of benefit can arise which can have a negative effect for those departments which don’t offer them. An example of this is workplace flexibility and hybrid working which is now an expectation for many, and would deter applications if not offered.”

However, he added, there is still some way to go before ESOPs are common enough for this to occur.

For Mr Hunter, the rise in ESOPs being floated hasn’t made a noticeable difference — at least, not yet.

It is “something we will monitor”, he noted.

“We offer our client partners a variety of options when it comes to calculating service fees; payment terms, success measures etc and we will consult our client partners if a trend emerges or ESOPs make up a proportionately high component of a candidates’ remuneration package,” he said.

Changing landscape of remuneration packages

Reflecting on what the mainstreaming of such incentives means for legal recruitment and the employment market more generally, Mr Stirling said that he would view such a trend as part of a broader change by organisations looking to attract and retain the best talent in a challenging hiring market.

“Traditionally, these changes would have been purely salary driven, but now companies are looking beyond this at long term incentives as well as non-compensatory benefits such as flexibility, social impact and ESG,” he said.

“Demand for the best in-house counsel is still way ahead of supply, so companies that recognise this and improve their offering can benefit by having better access to hiring and retaining the best talent.”

Remuneration in-house, Mr Hunter pointed out, has increased around 18-20 per cent in the last year, and at this juncture, he hasn’t “seen any evidence of this trend slowing”.

“Part of this trend includes a greater propensity and openness to consider creative salary packaging to entice candidates into a business or stay with a business, ESOPs are only one carrot being dangled. Lawyers have never had as much power as they do right now, the pandemic created an employee market, however, this could change quickly given the current economic conditions,” he outlined.

“One only has to look back to the 2008–2010 market; hopefully this doesn’t come to pass. The market will find a better balance as we see overseas candidates enter the domestic market, Australians return post-Euro summer, economic conditions worsen overseas, and as Australia warms up. Remuneration is listed as number four out of the top five considerations when it comes to candidate search requirements and motivators; companies should consider their EVP alongside remuneration and reward in equal measure.”

For example, he said, career progression, management exposure, affiliation to ESG/corporate values, brand recognition, hybrid working arrangements, and/or location could be viewed as more valuable to a candidate than an at-risk three-year vesting share plan.