The 2012 GC Compensation Survey

Top lawyer pay craters. Is this a short setback—or the start of a trend?

, Corporate Counsel

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What a difference a year makes. This time last year, Charles Kalil was in the number 12 spot on our annual list of the highest-paid Fortune 500 general counsel. In last year's report, the GC of The Dow Chemical Company enjoyed a hefty $1.8 million bonus and earned $2.67 million in total cash compensation. But Kalil needed fewer wheelbarrows to cart his money to the bank in 2011. His earnings took a nosedive to $1.56 million, the direct result of a precipitous $1 million drop in his bonus.

Why? The chemical giant linked its executives' bonuses to meeting critical annual company goals in 2011. And since Dow's top brass didn't meet projected profit and cost management targets, Kalil's base performance award was just half of what it could have been.

2012 GC Compensation Survey:

Kalil's slide was one of the year's steeper drops; he landed at number 39 on this year's list. But Corporate Counsel 's latest GC Compensation Survey shows that he wasn't alone. It was a year of declines—some in the double digits—for every component of GC pay that we measure. A number of reasons are to blame—the economy, poor share performance, and last but decidedly not least, shareholder scrutiny. Say-on-pay resolutions are taking their toll on executive pay, and GCs aren't immune.

As bad as they look, this year's results go down better with a spoonful of historical context. The drops come on the heels of double-digit gains across most categories in last year's survey. And those results in turn followed a year of plunging take-home cash, particularly in the area of bonuses.

So what's the bottom line? "After three very volatile years, what we're seeing is a return to normalcy," says Aaron Boyd, head of research at executive compensation analysts Equilar Inc. in San Francisco.

Let's examine the components of GC compensation individually. Base pay took the softest blow in this year's survey, dropping only 1.8 percent, to $611,411. That wasn't surprising, because salary tends to be the most static element of the executive total pay packet. That's unlike stock awards and bonuses, which tend to fluctuate dramatically, a trend exacerbated over the last five years. Salary averages, on the other hand, have fluctuated just 2.6 percent per year. From 2009 to 2010, GCs saw their base pay inch up 0.6 percent. (For an explanation of how we conduct the survey, see our Methodology page.)

The highest-salaried GC on this year's list was Philip Morris International Inc.'s David Bernick. After just two years with Philip Morris, the GC abruptly resigned his post in February. But before he left, the tobacco company's top lawyer was earning an annual salary of $1.6 million. If he sticks to the terms of his noncompete agreement, Bernick stands to collect an additional $1.6 million next February. Not too shabby for not working against the company for a year, right?

After a 28.7 percent surge the previous year, bonuses did an about-face in our most recent survey. Traditional bonuses and nonequity incentive pay (which basically are bonuses tied to meeting certain targets) were down a combined 7.7 percent, to an average of $1,125,458. That's not to say that there weren't GCs who were handsomely rewarded for a job well done. Thirty-nine lawyers crossed the million-dollar bonus mark—two fewer than last year. The biggest bonus check was made out to Louis Briskman, CBS Corporation's general counsel. He took home $5.2 million in bonus and nonequity incentive compensation, a package that hoisted him to the top of this year's survey.

Briskman's cash compensation totaled $6.5 million—which incidentally was about the same amount earned by last year's highest-paid GC. But overall, chief legal officers from the nation's largest companies took a hit in total cash compensation. The average salary-plus-bonus combo weighed in at $1,736,869, down 5.7 percent from the year before.

Cash compensation is only part of a chief legal officer's pay packet. Stock awards (either options or grants) are a big part of the lure of working in-house, and here again, there's another contrast to the relatively stable base salary picture. (We feature stock awards in our survey, since they're such a large part of the total compensation package, but our rankings are based on cash compensation only.)

Now for the punch line: GCs had a collective case of the incredibly shrinking equity award last year. The average stock award fell 10.8 percent, to $1,426,325, in this year's survey. And of the 70 lawyers who received once-lucrative (but still coveted) option awards, the average award fell a shocking 18.7 percent, to $732,453. To be sure, not everyone saw his or her stock portfolio wind up underwater: Google Inc.'s David Drummond, for example, received an $8.4 million stock grant and an option award of $6.2 million. (Continue reading >>)

Those aren't small potatoes by any means, but let's put GC equity awards in perspective. While chief legal officers earn enough to fall somewhere in the by-now-famous 1 percent, their compensation pales in comparison to that of their CEO bosses. Compare our top GC earner, CBS's Briskman, with the entertainment company's CEO, Leslie Moonves. Briskman's stock and option awards came in at a relatively modest $3 million. The chief exec, on the other hand, earned $31 million in salary and bonus last year. Tack on stock and option awards, and Moonves received a lavish pay package of almost $67 million.

Of course, compensation packages for CEOs have always been higher than those of their GC counterparts, and they tend to include deal-sweetening equity awards. Those awards are saving the day for them, even in these hard times. An Equilar survey of the Standard & Poor 500 revealed that CEOs realized modest gains in compensation last year, driven by a 10.7 percent jump in their median stock award.

Some compensation experts weren't surprised to see GCs' stock awards move in the opposite direction. Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, says that unlike CEO compensation, GC pay is based on what's out there in the labor pool. "With all the law firms blowing up, there's a lot of talent floating around," says Elson. It's a simple matter of supply and demand, he says. The greater supply of lawyers who are willing to fill general counsel positions may be driving their pay down.

Others discount the influence of a surplus pool of skilled legal talent. Proskauer Rose partner Andrea Rattner advises companies, boards of directors, and compensation committees in the area of executive compensation. Rattner acknowledges that the employment market has been tough for lawyers. "There is a glut," she concedes. But Rattner hasn't detected a resultant devaluing of the general counsel role. She insists that companies are always going to be willing to pay to keep good people—GCs included.

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Originally appeared in print as Lower Pay is the New Black

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