In-house pay gap closes as firms shift away from old PQE model

The wage gap between private practice and in-house lawyers is closing as the amount of time taken to reach partnership continues to increase, according to analysis in Towers Watson’s Legal Salary Report.

The report found that, while junior lawyers who trained in private practice earn over a third more than their contemporaries in-house, several years of experience can see in-house lawyers earn up to 11 per cent more once bonuses are taken into account.

Data from the report showed that a lawyer at a mid-sized firm who qualified in 2007 would expect an average salary of around £88,000, including bonuses, while the equivalent in-house lawyer at a financial services company would expect a base pay of £83,500, with total compensation taking that figure to £97,000.

This wage gap can increase further down the line, with the study finding that the increasing time it takes to reach partnership has led to a flattening of pay for lawyers below partnership level.

“It used to be considered that seven or eight years of experience would see many lawyers through to partnership, but now this career curve is lengthening,” said Towers Watson senior consultant Philip Hough. “As a result we’re seeing pay level out once lawyers reach eight years experience with one or two per cent annual increases for the following few years. This would be a sharp slowdown in the rate of pay rises they would have become accustomed to in prior years.”

The study also found that the sector is adopting a performance-based approach to pay rather than the traditional post-qualification experience (PQE) model that rewards employees for the number of years served since qualifying.

“We’re seeing a definite shift away from the old PQE pay model as law firms find that if they want to attract and retain the most valuable employees they have to differentiate their pay structure in order to reward the top talent, rather than simply increasing pay depending on the number of year’s served,” said Hough. “Similarly in-house legal teams are driving a lot of this mobility by offering more competitive pay packages in order to tempt experienced private practice lawyers over to the corporate sector where they can also offer greater work-life balance.

“In some instances we’re seeing similar base salaries offered by both, but when bonus and benefit packages are included, in-house total reward packages can be higher. This is a new development and indicates that competition has increased for experienced lawyers in the last few years.”