Wage inequality in Portugal fell substantially since 2005, in contrast with the patterns observed in other advanced economies. Using a matched employer-employee dataset spanning the entire set of workers in the portuguese private sector, we investigate the determinants of this convergence and the role played by firms. We document that 80% of the drop in wage variation was driven by a reduction of between-firms inequality. At the same time, we find that wage variance fell along the entire distribution of workers, while the firm pay distribution compressed mostly at the bottom 50%. Estimating an AKM model, we find that 34% of the total decrease in wage variance can be accounted for by a reduction of the variance of worker effects, 20% by a reduction of the variance of firm effects and 24% by a reduction of the degree of sorting of high pay workers to high pay firms. We then discuss the potential role that minimum wage hikes might have played.