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

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