Fighting Pay Compression

Risks of Pay Compression  

The lack of proper salary delineation between staff of different levels of seniority can pose several problems for a law firm, such as:  

Warning of the potential challenges resulting from the bunching of wages, Welling says, “Pay compression can undermine morale, fuel turnover and strain firm culture.” She explains that when “seasoned associates or long-serving staff see newcomers earning similar or higher pay, the perceived lack of reward for loyalty can lead to disengagement or departure.”  

Employees who feel they are not being rewarded commensurate to their level of experience can become disgruntled and may seek new opportunities. 

The overall cost of replacing a legal professional is estimated to be, on average, around three to four times the salary of an attorney, which reveals that it’s crucial to minimize turnover, even from a purely financial perspective.  

Who Is Most Affected by Pay Compression?  

The absence of a coherent salary structure can impact law firm employees across the board. But the most negatively affected group, according to Welling, are associates with a few years’ experience under their belts. “Mid-level associates are often hit hardest. They carry significant client work yet see lateral hires paid nearly as much without the same institutional knowledge,” she says. She notes that, “Even junior lawyers are impacted when pay scales flatten, limiting visible progression and making career advancement feel less rewarding.”  

And it's not just attorneys who are affected by salary bunching in law firms. Paralegals and administrative professionals also feel the pinch, especially when the firm must match corporate market rates to recruit replacements, Welling explains.  

However, on the other side of the Atlantic, Stockler says that senior lawyers in the UK are particularly impacted. “While many US firms distribute pay increases evenly across all post-qualified experience (PQE) levels, many UK firms do not,” he says. This, he explains, is where the issue of pay compression arises. As a result, he sees senior lawyers disgruntled by the fact they are not earning that much more than their junior colleagues. Since senior lawyers are generally more expensive to replace, it's essential that firms make any necessary adjustments to keep them on board.  

How Can Firms Tackle Pay Compression?  

As with fixing most problems, the first thing a firm needs to do is identify pay bunching. To this end, it’s vital to carry out regular evaluations of pay and decide if there is a rational salary structure in place that fairly reflects the progression of staff. Welling says prevention starts with proactive compensation benchmarking by reviewing salaries annually (or more often in fast-moving markets) against reliable industry data. She suggests, “Firms should assess new hire offers in context with current employee pay to avoid inequities at the point of hiring.” Addressing existing compression may require targeted market adjustments or retention bonuses to bridge gaps without destabilizing budgets. 

Although some firms regularly stipulate that members of staff refrain from discussing their salary with colleagues, in practice this is difficult to enforce, and such a strategy can backfire. Welling argues that transparency is the best policy. “Transparent communication about the firm’s pay philosophy helps manage expectations and reduce speculation,” she says. In some cases, basing salary increases off clear performance metrics and career milestones reinforces fairness, while also encouraging professional growth and retention across all levels of the firm.  

Junior lawyers often place just as much — if not more — value on non-pecuniary benefits such as work/life balance. So, instead of hiking up salaries, firms might want to consider attracting top talent by means of other policies such as flexible working. On this point, Peart says, “Where lower pay exists, it’s often offset by benefits like reduced hours or sign-on bonuses to make prospective candidates ‘whole.’” He notes that this clarity helps manage expectations and reduces friction on compensation across experience levels.  

Unsurprisingly, the methods of mitigating pay compression are similar between the US and the UK. According to Stockler, like US firms, UK firms have increased — although in smaller increments — salaries across experience levels while others have introduced lucrative bonuses or opted for providing better work/life balance in return for a lower salary.  

By reducing pay compression, law firms see increased morale in staff, lower turnover rates, better recruitment and less risk of age discrimination claims. In tackling this issue, firms can become healthier, stronger and more cohesive.