Gender pay gap reporting: what are the implications for law firms?

Gender-Discrimination

Today (6 April), new regulations have been introduced that require UK companies with more than 250 employees to publish details of the pay gap between their male and female employees.

Employers have 12 months to publish six key calculations, including mean and median gender pay gap figures, the proportion of men and women in each quarter of their pay structure, and details of bonus pay gaps, with the information required to be posted on both their own websites and a government site.

With diversity rising to the top of the agenda for many law firms, what is the new legislation likely to reveal, and what are the key implications for the legal sector?

PwC employment law head Ed Stacey is working with a number of law firms on how to best navigate the new landscape. An amendment to the legislation passed last year means LLP members, or equity partners, are exempt – but all other employees and fixed-share partners are included.

Stacey says: “We know that at the more senior end of law firms, there is a larger gender imbalance in the demographic. It’s likely that firms with a significant amount of fixed share partners will see a higher gender pay gap overall, because you are putting your more highly paid people into the pool you take the average from. There are relatively few firms that have all-equity models – at all of those, you may see slightly lower pay gaps, as all their partners would be excluded from the data.”

For firms that have ‘black box’ remuneration systems, this will be seismic

Stacey cites a number of issues that are likely to have an impact on the width of the pay gap at some firms.

“We’re spotting problems arising with big team hires into firms. Broadly speaking, women tend to be much more loyal at senior levels, and will move less in their later careers, while men will move more frequently to obtain incremental pay rises. When a firm takes on a team of people who they’ve brought in on higher rates, this could make the gap grow.”

Herbert Smith Freehills EMEA employment co-head Andrew Taggart and employment partner Christine Young suggest that the new reporting requirements will shed more light on the different career paths followed by firms’ male and female lawyers.

Taggart says: “It will be interesting to look for trends in progression at firms and where a gender pay gap starts to appear – it will focus partnerships on retention issues.”

While some in the legal sector have been making significant efforts to improve diversity, the new rules are likely to present unique challenges for more secretive firms.

Roberts Kim 114146-Article-201704060617King & Spalding employment counsel Kim Roberts (pictured), who advises global corporates and large employers in the UK and across Europe, says firms that have not been historically transparent about pay may struggle.

She says: “For firms that have ‘black box’-type remuneration systems, this will be seismic. Bonuses are also something firms are generally quite secretive about, so it will be interesting to see them publish the difference there.”

The new legislation does allow firms to provide an explanation for the findings, and to give details about actions being taken to reduce or eliminate any pay gap.

Young says: “It will focus the mind of all organisations about how to address any issues that arise. If it’s going on their own website, one would expect them to be looking at how best to explain to their employees why there are gaps and how they plan to deal with them.”

While the new rules are likely to be welcomed by firms keen to position themselves as progressive employers, doubts remain over how much impact they will have in reality.

Roberts argues: “I think it’s unlikely to change the culture of an organisation. Some firms might then roll out diversity plans next year to show how they plan to improve, but it won’t be a game changer.”