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Pay transparency laws an opportunity for employers

Australia’s new pay transparency laws are an opportunity for firms to build trust and stand out in attracting and retaining diverse legal talent, writes Tracey Matthews.

user iconTracey Matthews • 16 August 2023 • Big Law
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In early 2024, Australia’s Workplace Gender Equality Agency (WGEA) will publish gender pay gaps for employers with 100 or more employees, extending the current reporting at the industry level to individual employers.

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The new disclosure laws will shine a spotlight on what tangible outcomes firms are delivering from their diversity, equity, and inclusion strategies. Law firms who are on the front foot with these changes (like those who currently voluntarily disclose) can take the lead by having a clear ambition and strategy for achieving career and pay equity – one that builds trust with their teams, prospective employees, clients, and community stakeholders.

The boost to pay transparency is expected to generate more data-informed conversations about pay and benefits as additional information becomes available across firms and the public arena. If overseas experience is a guide, we anticipate transparency will evolve to include further measures such as the availability of salary ranges and other pay data at hiring and during employment. And for firms with less than 100 employees, the spotlight on transparency is likely to send ripples across the sector as expectations grow for more information about law firm pay.

What is the gender pay gap?

  • Law firms align with the professional, scientific and technical industries, where the gender pay gap stands at 23.5 per cent, just above the 22.8 per cent shown across all industries. This figure represents the average dollar difference in total remuneration and includes not just base salary and superannuation but also the value of other payments, like performance bonuses.
  • As an average, the gap doesn’t reflect comparisons of “like for like” roles. It is therefore affected by the higher representation of men in senior roles. The published gap for professional firms is also understated because it doesn’t include partners in the calculation, as they’re not employees.
Pay transparency laws on their own won’t create enduring gender equality, but they can help to even out power symmetry by normalising discussion on what has been generally a taboo topic in hierarchical firms. But managing partners and firms can take action to nudge the culture to build trust. Here are five actions firms can take to prepare for public disclosures.

  1. Engage your board or governing body as part of your ESG platform
The new laws require that an executive summary report and an industry benchmark report be provided to the relevant employer’s governing body. Many firms may be doing this already, but for those who aren’t, this is a great opportunity to engage the board and acknowledge the critical role they play in setting the environment and culture for change. The attention to this topic at the remuneration committee and board level will boost firms’ progress in addressing gender pay equity as an important part of the “S” in their ESG platform.

  1. Work on your firm’s explanatory statement
One of the discussion items your board should be part of is preparing an explanatory statement. As part of the public disclosure, employers will be able to provide a link to a statement explaining the context around their gender pay gap and the actions they are taking to reduce it. This is your firm’s opportunity to hone your narrative on gender pay and career equity and strengthen the firm brand as part of the wider employee value proposition (EVP) message and talent retention strategy. For example, firms may decide to share their adjusted pay gap, which considers the “like for like” comparison. While the unadjusted gap may be, say, 20 per cent, after a comparison of lawyers doing similar work, the gap may reduce to around 1 per cent, and the narrative could focus on efforts to improve the representation of women in senior roles. The narrative might explain the firm’s progress in closing the gap over time and feature policy changes like enhanced parental leave, targets for increasing women into the partnership and flexibility policies. Forward-thinking firms will embrace the opportunity to share best practices to raise the bar for gender equality across the industry.

  1. What matters in your firm, and how is it rewarded?
It is time to get clear on your firm’s remuneration philosophy. What are the important lawyer attributes and behaviours that matter in your firm, and how are they rewarded? What are the objective criteria used for differentiating remuneration? What is the balance of financial and non-financial metrics? How is performance evaluated: at the firm, practice group or individual level? How important are years of professional experience, and how is it calibrated for periods of parental leave and flexibility arrangements?

It is important that the performance and rewards criteria align with your firm’s culture and values, are defensible and will withstand scrutiny and governance. For example, if your firm says that teamwork, collaboration, knowledge sharing, mentoring and pro bono work are important but then narrowly rewards financial productivity, this will create dissonance and disengagement among lawyers.

As important as what criteria matters is how decisions are governed. Who is involved in assessing a lawyer’s performance and capability development? How are “talent reviews”, “high-potential discussions” and “performance calibration” meetings conducted, and how are lawyers represented to ensure fairness and equity? Such forums can be perceived as secretive and can erode lawyer trust when it comes to remuneration decisions. HR can play a valuable role in supporting and moderating these processes to ensure defensible outcomes and good governance.

  1. Review your firm’s bonus plan
The gender pay gap includes not just base salary but also other payments like bonuses. For some law firms, base salary is often linked, at least in the early years, to years of professional experience or post-admission experience, which can create a degree of uniformity in remuneration. Significant differentiation in pay often happens due to variances in bonus outcomes. Whether your bonus program is contractual or non-contractual, formulaic, or discretionary, now is the time to review your documentation and the factors that are considered in determining bonus outcomes. Test these workings against what is important for your firm (action three above), your rewards philosophy and what matters.

Where your bonus program has financial and productivity measures, review how equitably billable work is allocated across lawyers and if delegation is working effectively to ensure senior lawyers are not hoarding work. Where discretion is exercised, what criteria are considered and who makes decisions? How is discretion moderated or challenged? Again, HR can play a strong advocate role.

  1. How prepared are your partners, special counsel and senior associates to have conversations about pay?
The new pay disclosure laws follow a recent ban on pay secrecy introduced under the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022. This legislation created a new workplace right, allowing employees to ask one another about and disclose their remuneration. In addition, employers are now prevented from enforcing pay secrecy clauses in employment contracts and from including pay secrecy clauses in new employment contracts and other written agreements.

This means that lawyers are now free to discuss a range of pay-related topics with their colleagues, including remuneration increases, performance bonuses, retention payments and other benefits – conversations that were previously either subject to disciplinary action or culturally discouraged in many firms. It will be important that partners and senior lawyers involved in conversations about rewards feel supported and armed with the facts.

Pay transparency will step up the focus on fair pay. New laws will require an extra layer of care in defining and communicating remuneration policies and practices and provide an opportunity for wider communications with lawyers. Greater transparency on pay usually goes hand in hand with transparency on other topics like financial performance, sustainability, environmental and social metrics. Firms that have confidence in their career and pay equity strategy will soon be on their way to complying and leading in this space.

Tracey Matthews is the director of talent management and organisational development at WTW.

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