Survey Reveals Disparities in Compensation by Practice Area, Equity Tiers and Other Areas

With billing rates surging and firms reporting record profits, firms are noting the potential for tension caused by compensation disparities and taking steps toward transparency and more equitable pay structures as a result. Some of these tensions are identified in Major, Lindsey & Africa's 2024 Partner Compensation Survey, which is conducted biannually and compares law firm partner compensation levels over time.

The survey explores differences in compensation, originations and satisfaction between partners of differing equity tiers, practice areas, geographies, and other demographics. Compensation trends among partners of color, who continue to face barriers which pose unique challenges in the legal market, are also discussed. Understanding how their practices are valued can be a powerful tool in navigating those challenges.

Among the notable findings in the survey are:

• Record-breaking compensation: Average partner compensation has increased by a staggering 26% over the past two years to $1.4 million annually. This is nearly double what the average partner earned 10 years ago.
• Equity vs. Non-Equity tiers: The pay disparity between equity and non-equity partners remains substantial. Equity partners took home average earnings of $1.9 million, compared to $558,000 for non-equity partners.
• Gender pay gap narrowing but present: Average compensation for women was 29% lower than that of men, with men's compensation reaching an average of $1.7 million compared to $1.2 million for women. However, both men and women's compensation rose at the same rate since the 2022 survey.

Differences in compensation between partners in varying survey demographics are a common theme of the survey. For example, different practice areas have long seen gaps in their compensation, as indicated in the chart below.

The negative impressions these compensation differences can leave are worth considering for firms looking to attract and retain talent, particularly in the increasingly mobile modern legal market. Fifty-one percent of survey respondents moved laterally to their current firm, whether from another firm, private industry, or government service. Firms remain competitive and maintain their relevance and growth by attracting inward movement from lateral partners.

In this environment, partners of color, women and first-generation partners face unique challenges. Bias and discrimination remain stubborn issues. Networking barriers also impact their ability to grow their portable business, thus earning top compensation.

Addressing these challenges requires a concerted effort from law firms to implement fair and inclusive compensation practices. Networking barriers can be particularly challenging. Strategies such as establishing mentorship programs, joining professional associations, organizing internal networking events, leveraging social media, and other supporting initiatives continue to be important in supporting the growth of client relationships for these partners.

Some of the solutions in ensuring fair and equitable compensation for these groups may be similar to those already being introduced to combat dissatisfaction among partners of differing equity tiers. The survey shows a vast gap in earnings between equity and non-equity partners, which should be of particular interest to firms as more and more are offering non-equity partner tracks.

Equity partners are earning more than three times what their non-equity colleagues are earning on average. Additionally, 42% of equity partners earned over $1.5 million in 2023, while more than 50% of non-equity partners earned less than $500,000.

There is a clear difference in satisfaction levels among those groups; 80% of equity partners reported as satisfied with their compensation, whereas only 60% of non-equity partners reported the same. When asked whether they felt their compensation was fair in relation to their contributions to the firm, 49% of non-equity partners responded, "No."

Transparency seems to be a crucial factor in building a sense of fairness and value among partners. Forty-nine percent of survey respondents indicated that their firms had "open" compensation systems, in which access to other partners' compensation is easy to obtain or readily available, and another 20% reported their systems were "partially open."

Partners in these open systems report significantly higher levels of compensation (80%) satisfaction than those in closed systems (63%). For those in open systems, 69% felt their compensation was fair in light of their firm contributions, as opposed to only 54% feeling the same in closed systems.

Partners of color responding to the survey indicated a broad spectrum of experiences related to compensation, such that it's hard to single out any definitive patterns of bias. However, partners of color clearly reported lower levels of satisfaction overall (66%) than white partners (75%). Among partners of color, this is again mitigated by transparency in their firm's compensation system, with 76% reporting as satisfied in open systems against only 53% in closed systems.

Another angle of approach for firms seeking equity and fairness in their compensation models lies in originations. Major, Lindsey & Africa's analysis of their collected compensation data reveals that originations alone account for 64% of compensation variation between partners, rising to 72% when combined with billing rates. We see this regardless of equity tier, gender, or practice area; Where originations rise, compensation rises proportionately. Therefore, it is incumbent upon firms to look closely at the systems they use for awarding origination credit and for sharing opportunities and find ways to remove both conscious and unconscious bias from those systems.

While partners of color are often the clearest victims of such biases, initiatives to increase fairness and equity in compensation should not be written off as "DEI" initiatives. It should be every firm's top priority to ensure their current talent is satisfied and incentivized to stay, and that new talent has as many reasons as possible to make a move. Understanding where compensation disparities exist is a crucial first step in correcting them and building an environment where partners of all stripes feel valued and welcome.