Hidden Gender? London Lawyers Are Divided Over True Pay Gap

(Bloomberg) -- The numbers came in and, at first glance, they weren’t the worst: The average gender pay gap for the largest 25 U.K. law firms by revenue was 20 percent.

That was far from the full picture.

As companies raced to report gender pay gap statistics in recent weeks to comply with new U.K. laws, an unforeseen issue unfolded. While most banks published gaps of more than 40 percent, law firms appeared to fare much better. That was until it emerged they were excluding partners -- their best-paid tier -- from the data.

“They’re gaming the system, and it’s the loophole, and it needs to be closed," Vince Cable, leader of the U.K. Liberal Democrats party, said in an interview. “It is simply unacceptable. Companies like that have absolutely no justification."

Under new legislation in Britain, businesses with 250 employees or more must report the hourly wage and bonus pay gaps between men and women. While it’s illegal to pay people in the same role different amounts, the new legislation reveals a different problem: Men generally monopolize the best-paid roles and women remain at the bottom.

For law firms, the issue has long been highlighted by a lack of female partners, with rarely more than a fifth of partnerships made up of women. But in a move unanticipated by lawmakers, most law firms haven’t included their partners in the data because they’re paid from profits, and as such considered shareholders rather than employees.

A number of the big accountancy firms also excluded partners from their reports before restating their figures in response to pressure from lawmakers. Deloitte’s average gender pay gap jumped from 18 percent, excluding equity partners, to 43 percent, while Ernst & Young went from 20 percent to 38 percent.

Hidden Gender? London Lawyers Are Divided Over True Pay Gap

The exclusion of partners sparked outrage from politicians who criticized lawyers for complying with the letter rather than the spirit of the law, yet only a small group have decided to restate their figures. Overall, nine firms from the top 25 have included partners in their gender pay gap reporting, according to Bloomberg News’s analysis of the data. Of those that have provided a firm-wide number, the average hourly wage gap is about 60 percent.

For Clifford Chance, one of an elite group of U.K. firms known as the magic circle, including partners was an important part of helping the firm to change, according to Laura King, the firm’s global head of people and talent. The decision more than tripled the firm’s average gender pay gap to 66 percent.

“Unless you’re transparent you don’t really understand what’s going on in your organization," King said. Excluding partners “we felt would not give us the opportunity to examine ourselves."

Partnership Structures

King also pointed out that Clifford Chance’s clients, many of which are FTSE 100 companies, couldn’t exclude top executives from the figures so it seemed strange for their lawyers to do so.

One issue faced by law firms is the different partnership structures, with some running a full-equity model while others have salaried partners that take some share in profits. This can make it hard to measure and get like-for-like comparisons among firms.

Some firms, including DLA Piper, said they’re looking at making their partner figures public even though the government report doesn’t require it. Others, such as Herbert Smith Freehills, said they would “respond to any changes to the reporting requirements.” The top 25 firms are based on a ranking compiled by industry publication Legal Week.

Out of Step

Firms that don’t release the numbers risk falling out of step with the “social mood,” said Tony Williams, founder of Jomati Consultants, which focuses on the legal industry. "I think they are missing a real point in the current social and political environment," he said.

Looking at the government data, which doesn’t include partners for any firm, DAC Beachcroft and Simmons & Simmons had the largest gender pay gaps based on the mean hourly rate, at 27 percent and 26 percent. The average median hourly pay gap for the top 25 firms was 28 percent, while the average difference in bonus pay was 43 percent.

A spokeswoman for Simmons & Simmons said the figures were affected by a largely female secretarial population and the firm was taking steps to improve its diversity. A spokesman for DAC Beachcroft declined to comment beyond the firm’s pay gap report.

The issue highlights how far the U.K. has to go to make the data meaningful, according to Andrew Bazeley, policy and insight manager at the Fawcett Society, which campaigns for women’s rights. Companies like law firms will need to look at whether their reporting accurately represents the situation.

"We think that including partners does give a much clearer picture of what’s going on at the organization," Bazeley said. Without partner data women at these firms may think "it doesn’t really reflect the reality of their experiences."

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