Pay inequality and job satisfaction of law firms: the role of strategic positioning

Abstract

Purpose

Using Porter’s (1980) generic strategy to define strategic positioning of law firms, this paper aims to explain why some law firms have more/less pay inequality than others do and examine the impact of pay inequality on law firms’ partners and the job satisfaction of their associates.

Design/methodology/approach

This paper uses data from The American Lawyer. The strategic positioning, compensation and job satisfaction scores of 614 firm-year observations of US law firms are hand-collected over the period from 2007 to 2016.

Findings

Non-equity partners at law firms with differentiation strategy (Porter, 1980) are more likely to build rainmaking ability than those at law firms relying on billable hours. As a result, law firms with differentiation strategy have a narrower pay gap between their equity and non-equity partners than those firms relying on billable hours. After controlling for the effects of strategy on pay inequality using two-stage and three-stage least squares models, this paper finds that a wider pay gap deprives associates of job satisfaction.

Originality/value

Considering strategic positioning, this paper validates why some law firms have more/less pay inequality and proves how pay inequality affects job satisfaction.

Citation

Song, K.K. and Whang, E. (2020), "Pay inequality and job satisfaction of law firms: the role of strategic positioning", Journal of Accounting & Organizational Change, Vol. 16 No. 2, pp. 189-213. https://doi.org/10.1108/JAOC-07-2019-0080