Even a boring, ho-hum compensation review season is peak brutality within a law firm. What is waiting for law firms’ next review season? It will be anything but routine.
I hesitate to say, “it’s different this year, ” but honestly, it’s different this year.
The swirl of the law firm “pay war” means that compensation issues will have an outsized impact. There is also the call for unprecedented pay transparency, with many firms poised to tell the world exactly what their attorneys make.
The new corporate world post-pandemic and the greater focus on ESG means law firms are being called to prove their commitment to fair pay just as their clients are, and those who don’t commit risk bearing the hit of high-profile pay equity lawsuits and fleeing talent.
So, why does recently released 2021 Bureau of Labor Statistics data show a vast gap, with female lawyers earning 26.5% less than male lawyers? This is something that cannot be explained just by differences in roles, as another report from Major, Lindsey & Africa showed male partners’ average compensation was 44% more than female partners’ average compensation.
It sounds a lot like a viral TikTok joking that men choose high-paying careers like lawyer and women choose lower paying roles like—female lawyer.
Pay Equity Leaders Can Still Fall Flat
Law firms have the foundation to be pay equity leaders. Many firms have lockstep, or semi-lockstep associate compensation systems. While there are some drawbacks, these systems have the benefit of reducing pay gaps. This level-field advantage can carry over into partner roles.
Add to this, law firms have a virtual data lake that would give most businesses undertaking pay equity reviews serious data envy. Associate, partner, and law school class year, multiple years’ worth of billable and credible hours records—seemingly objective measures of productivity and profit—and the value of time billed and collected are gathered routinely.
Law firms may not consider how good they have it when it comes to having many tools needed to explain why lawyers are paid what they are paid. And they know the law.
So why does the pay gap at law firms persist?
Data Tracking Gaps, Subjective Factors
As a thought experiment, think about the last time your firm issued compensation statements showing bonuses and annual increases. Were you told or did you assume that the comp or executive committee at your firm had some formula or methodology that assigned and then calibrated compensation fairly and consistently across the firm?
While I know this to be true in some law firms, there’s a secret about this process in far too many others: Many cannot fully or consistently explain, let alone demonstrate with sound methodology and analysis, the factors that determine pay.
In fact, some firms have been accused of being a compensation “black box.” With so many law firms providing legal advice to their own clients about pay equity, why the disconnect?
Sometimes firms just haven’t tracked the right information. While the data lake may be helpful for harder measures such as billable hours, softer measures—like key industry recognitions, cross-department or global collaboration, contributions to building firm culture or external profile, off-years due to a major case settling, or a key client leaving the firm—usually also matter to compensation, but may not be well tracked.
If it matters, it must be tracked.
For others, the hardest measures of productivity go soft when put under the microscope. Firms need to evaluate whether the measures they are baking into their pay systems—things like performance ratings or credit allocation—are themselves biased. Outmoded credit allocation systems cause pay equity issues. Period.
Don’t forget the upstream factors that allow lawyers to be successful and drive business. Big promo or training budgets, outsized access to awards opportunities, or media opportunities that are allocated to some lawyers but restricted from others can have a downstream impact on how quickly and effectively lawyers grow their businesses. This should be measured and tracked.
Pay Plans Upended by Laterals
The single most significant factor leading to pay equity inequalities is starting pay. If women start low, they will stay low.
Lateral partners earn 20% to 30% more than their non-lateral counterparts. And if you don’t think this has a major impact on pay equity, think again.
Smart firms will analyze the pay of lateral and homegrown partners, to catch those gaps. Also, beware the unicorn partner. Too often lateral partner promise does not materialize, but the firm is on the hook for pay equity issues that result. A technology solution to assess starting pay can stop these gaps before they start.
Workplace equity is becoming too important to relegate to a side project. Firms need to know whether their pay policies are operating as intended and be armed with the data they need to prove it. Sitting on the sidelines is not an option. Welcome to the transparency era.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Christine Hendrickson is the vice president of strategic initiatives at Syndio, which provides advanced technology solutions and expert advisers to assist employers with real-time pay and workplace equity. Before joining Syndio, she was a partner and co-chair of the pay equity group at Seyfarth Shaw LLP.