Tackling small firm pay gaps

The issue of pay gaps looks different in the larger firms where perhaps the gaps arise due to unconscious or conscious bias factors, presentism (pre-pandemic) and recruitment processes which favour recruitment of similar types of solicitor.

In smaller firms by contrast the structure of law firms itself can have a huge impact. This includes sole practitioners looking at a looming succession challenge, and partnerships and LLPs looking to grow their ‘equity’ pool base. They often find that the historical pay gap is a barrier to those they want to bring into the fold in order to grow the equity pool.

So over the last few years many have looked to bridging tactics, but perhaps only for those who are viewed as credible from a potential equity perspective.

The gender pay gap has got the most attention but over the last few years we have been working with firms looking to decrease the age profile of the equity ownership, make it more diverse for succession in terms of gender, ethnicity and class.

This is because when looking at a succession process the ability to bridge the gap is often key. I have worked with firms which are using earn out and earn in mechanisms to bridge the divide over two to five year periods. The gap is often not a deliberate act or decision, it is often a quirk of the small pool of equity, the sums previously invested and the appetite for non-equity partners to await an ‘equity’ opportunity.

It can make sense to convert the entity to a Limited Company. If so, then different share classes are being used to encourage junior ‘partners’ to stay and earn in whilst others earn out. For the growing number of limited company law firms this is a huge advantage.

The pay gap is a sensitive issue and the publicity is helping firms plan to tackle the issue better but we still have a long way to go to make long term planning more effective.