Market News

Law Firms May Soon See Ripple Effect of New York’s Pay Transparency Law

By Patrick Smith for New York Law Journal

New York City’s pay transparency law has the potential to alter the talent competition in Big Law for both attorneys and business professionals. 

The law may have little effect on associates at the largest firms who receive pay in lockstep. But Big Law will need to confront new competition challenges related to their staff, including how they attract and retain such talent, said several industry experts. And small and midsize law firms may face the same set of challenges for their staff as well as associates and other attorneys who are not paid in lockstep.

Whether in the attorney or staff ranks, the law will likely create some dissonance when existing employees find out how much potential new employees might make. And for an industry that loves to talk about its culture, this should be a point of concern.

Ronald Shechtman, managing partner of Am Law 200 firm Pryor Cashman, and chair of the firm’s labor and employment group, said he could see some competitive balances being shifted in the firms outside of the Am Law 100, where salaries for attorneys are more variable. “The Am Law 200 is all over the place,” he noted.

New York City’s Local Law 32, which became effective this month, requires companies with more than four employees to list salary minimums and maximums for any publicly posted positions that will (or could) work in New York City.  The law was designed to curb pay inequity and pull back the curtain on black box pay structures that often put women and minorities at a salary disadvantage. 

It does not require law firms to post bonus and equity compensation, which could minimize the impact it has on partner compensation and competition. Likewise, Big Law associate pay—already fairly transparent through lockstep associate salaries—may not see an impact. “I think for them, any change will be on the margins,” Stephanie Biderman, partner at recruiting firm Major, Lindsey & Africa, said about associate pay at large law firms.

But with the Big Apple host to hundreds of law firms large and small, the law will likely have an effect on attorney and associate jobs that are not in lockstep. Just like other jobs, some experts said, these positions may encounter pay compression—where new employees are paid higher starting salaries than existing employees in the same or similar position because of perceived pressure on firms to be more competitive.

“Small- and medium-sized firms may struggle with pay compression,” said Ren Tucker, CEO of Maverick Search and Consulting, confirmed in an email. 

Such firms are used to competing with larger firms for talent, “and by necessity are more creative in getting people through the door,” said Tucker, but “I’m not sure these firms are as disciplined as their larger peers with their internal pay structures and they may have some work to do to get there.” 

Shechtman, at Pryor Cashman, also pointed to the effects of firms outside the Am Law 100. ”Even now when you talk to a recruiter they don’t know what everyone pays, particularly when you get outside of the Am Law 100 scale.”

“Much of that is in bonus and other forms of compensation, and that remains cloaked,” he added, but he applauded the transparency the spirit of the law could provide, noting the law will provide “greater transparency in the competitive market.”

Business Professionals

The majority of job postings that will be affected by this law, according to several experts, are jobs that don’t have a strong equity or bonus component. So the law could have its largest impact on law firm staff and business professionals, sources said, such as paralegals, IT, HR and other salaried jobs.

Firms will likely confront some challenging and awkward discussions. For instance, a staffer may find that the firm is advertising to bring in additional workers for her same job at a much higher pay scale, said employment litigator Peter Glennon.

“It’s the loyalty discount,” he said. “You were brought in at a higher than market rate to get you there, after that the pay increases are typical. But those typical increases don’t maintain pace with the attractive salary necessary to recruit someone.”

Meanwhile, factors such as seniority and experience and the like can drastically impact the range of a salary, potentially making “good faith estimates” a difficult task. Indeed, the wide pay ranges of several corporate job postings in New York have already made headlines.

Trish Lilley, CMO of Stroock, Stroock & Lavan, said that while she applauds the spirit of the law, she isn’t sure the “outcome will match the intent,” noting some advertised roles could have wide pay ranges.

“A marketing coordinator, for example, could be at $50,000 or $90,000 per year,” she said. “Does that narrow it a bit? Yes. But I don’t know if it will make an enormous differenceYou already don’t see the most senior roles advertised on websites.”

And some are concerned that the law could deflate advertised wages for staff jobs and have a negative impact on salaried employees. 

“Yes, it may help close the wage gap for women and people of color, but it may keep salaries across the board lower than the market would allow,” said Glennon. “Once everything is advertised and we settle into these typical banks, there is no reason for one firm to increase pay over another,” Glennon said.

Still, Valdi Licul, a partner at plaintiffs firm Wigdor who specializes in employment and antidiscrimination cases, there may also be some unintended positive consequences, especially when a pay dispute evolves into litigation.  

“When there is a pay equity case, it shakes the employer,” he said. “Especially if the issue is successful, it comes to the forefront, even if the case is just about one person. A secondary effect of that is that the company doesn’t want to get sued again. Whether coming from a place of wanting to be fair or fear of litigation, there are ripple effects.”