Diversity & Inclusion

Study Explores Gender Gap in Law Firms

The Social Science Research Network recently completed a study examining the gender gap in partner compensation in America’s law firms. The study, entitled Statistical Evidence on the Gender Gap in Law Firm Partner Compensation, compiled the largest research sample on the gender gap in compensation at the 200 largest law firms (“Am Law 200”) by combining two large databases to examine  why women partners are compensated less: because they are less productive than male partners or because they are women?

The Am Law 100 and 200 studies included gross revenue, profits, number of equity and nonequity partners, and the total number of lawyers at each firm. The study also relied on data from the Vault/MCCA Law Firm Diversity Programs study (“Vault study”), which includes the  gender ratios at each Am Law 200 firm. The study collected data from the years 2002 through 2007.

The study found that the ratio of women equity partners to women nonequity partners is 2.546 compared to a ratio of 4.759 for their male counterparts over the six-year period studied. An increase of one percent in the proportion of women partners at a law firm is associated with a 1.112 percent lowering of the overall compensation for all partners at the firm. The study found that this disparity in  compensation between women and men partners exists even after factoring in the lower compensation of nonequity partners and the greater likelihood for women to remain nonequity partners. The study reports that women partners are paid less despite the fact that  they are not less productive than men partners in generating revenue per lawyer (“RPL”) for their firms. The average gross revenue of firms with the highest percentages of women lawyers was approximately $20 million higher than firms with the lowest percentage of women lawyers, but the RPL of these firms dropped by approximately $120,000 per lawyer. The study concluded that average compensation for the lawyers at a firm goes down as the proportion of women at a firm rises, indicating that women in all positions at a firm are paid less than their male counterparts.

The study opines that more lawyers entered the workforce in recent years because of increased demand for legal services and growth  in law school populations. Between 1987 and 2008, women first-year law students reached a low of 42.2 percent in 1990 and a high of  49.4 percent in 2000. During this period, increasing numbers of women were hired at large law firms. A logical expectation would be that the proportion of women in positions of power at the Am Law 200 firms would increase over these 21 years. Women represented approximately 50 percent of the associate hires during the 18 years prior to 2001 but only 15-16 percent of partners. The study found that the women who make it to partner are paid less than their male counterparts. This was consistent with the study’s finding that even the women who are among the top executives leading major U.S. corporations are compensated 28 percent less than their men counterparts.

Nearly 80 percent of the Am Law 200 firms now utilize a two-tier structure of equity and nonequity partners. An equity partner’s compensation is primarily composed of profits of the firm; a nonequity partner’s compensation is primarily on a fixed income basis. In a traditional one-tier partnership, there are only equity partners. Nonequity partnership can be an intermediate step to full  partnership, but this is increasingly not the case. The study discovered that firms are creating fewer equity partners and more nonequity partners. The development of two-tier partnerships, the lengthening of the time periods to make partner and equity partner, the reduction in the number of equity partners, the creation of new categories of permanent associates and permanent nonequity partners, the expanded number of permanent of counsel, and the demand for increased billable hours, have combined to increase income for a shrinking group of equity partners and to disadvantage women in large law firms.

The study examined the gender gap problem in law firm compensation primarily through an empirical lens. Its statistical analysis concluded that women partners are compensated less than men on average at the Am Law 200 firms regardless of whether they are  equity partners or nonequity partners. The study concluded that this gender disparity could not be explained by lower productivity of women partners. It was determined to be more appropriately attributed to discriminatory practices under both disparate treatment and disparate impact analyses.

Two databases were used as sources for the study’s sample. The financial data in Am Law 200 includes each firm’s gross revenue, net income, number of equity partners, number of nonequity partners, and the total number of lawyers at a firm, excluding first-year associates, outside contracted lawyers, and per diem lawyers. The Vault study contains the gender ratios at each Am Law 200 firm. The study’s compensation model covered the time period from 2002 until 2007 and included all firms that appeared on both lists for at least four years, resulting in 638 observations. The total number of lawyers at a firm was defined as the headcount of lawyers at the end of the fiscal year, excluding first-year associates, temporary contracted lawyers, and per diem lawyers. The number of partners at a two-tier law firm included both equity and nonequity partners, but not retired partners or of counsel. The study adopted Am Law  100’s definitions of equity partners as those who file Schedule K-1 tax forms and receive less than half of their compensation on a fixed income basis and of nonequity partners as those who receive more than half of their compensation on a fixed basis. If a firm has a one-tier partnership structure, the total number of equity partners equals the total number of partners at the firm. The study  examined average compensation of all partners by adding firm profit shared by equity partners to compensation paid to nonequity partners and by then dividing the total by the total number of equity and nonequity partners. It also examined average compensation of equity and nonequity partners separately.