Reality Check: The In-house Counsel Compensation Report

by Steven Anderson

Corporate Legal Times — Volume 12, Number 124, March 2002

The last days of disco are over.

Glitzy compensation packages replete with stock options, big bonuses and exotic perks went out of style in 2001, as corporate counsel shifted their focus to base salaries and more traditional benefits. Recession and current events then drove a stake through the last vestiges of boom-economy excess.

"Salaries have flattened out," says Jonathan Lindsey, managing partner of the recruiting firm Major, Hagen & Africa in New York. "Companies aren't making increases because they aren't facing the kind of compensation they were. The dot-coms are gone, and the law firms, with a few exceptions, are not paying the big bonuses."

Most anecdotal information and survey data agrees that over the past year the emphasis has shifted to cash compensation for in-house lawyers. Salaries have not gone down, but they haven't gone up as dramatically as in recent years. And bonuses are far from a sure thing.

"At the beginning of 2000, you heard a lot of corporate counsel say 'I'm working here because of the options,'" says Aaron Williams, president of Aaron Consulting, Inc., a nationwide attorney recruiting firm in St. Louis. "At the beginning of 2001, they were saying "I'm working here because of the bonus.' At the end of 2001, they were saying 'I hope I get a bonus, because my options are seriously underwater."

By the numbers

Without a doubt, there are fewer job openings than a year ago, and the recent compensation spike is over. Beyond that, any generalization about compensation gets sketchy. Because in-house compensation depends on so many variables --sector, company, market conditions, individual aptitudes and practice areas, to name a few-- across-the-board trending is dubious.

There is, however, a wealth of data on the subject of compensation, and focused questions do have answers. Most of those answers can be found in the four major surveys covering law department compensation:

The Abbott, Langer & Associates Inc. Survey of Compensation of Legal & Related Jobs;

The Altman Weil Inc. 2001 Law Department Compensation Benchmarking Survey;

The William H. Mercer 2001 Finance, Accounting & Legal Survey; and

The PricewaterhouseCoopers 2001U.S. Law Department Spending Survey

After crunching all the numbers in these surveys, the same general picture emerges.

"Base salaries increased at normal percentages," say Kathryn Parker, a director at PricewaterhouseCoopers in New York. "More interestingly, the long-term incentive numbers went down by much larger percentages, ranging from 25 percent to 50 percent in some cases. That's more significant than the base salary increases, which are typically between 1 percent and 10 percent."

The good news is that even with a dip in bonuses, compensation trends are rosier for most corporate counsel than other businesspeople.

"Our survey shows that pay for attorneys, senior attorneys and top corporate legal executives has risen fast or faster than overall salaries across the United States for the past few years," says Jeffrey J. Fuller, a senior compensation consultant at William H. Mercer in Chicago. "However, pay for some corporate legal jobs -- including associate or deputy general counsel and legal assistant — is climbing more slowly."

Top Jobs

For general counsel employed at the largest corporations, compensation has been unaffected by the events of 2001. GC's at Fortune 100 companies can still expect to make at least $500,000 a year, says Catherine Nathan, a senior partner and head of the global legal search practice at TMP Worldwide in New York.

"Compensation is still there for people with the quality interpersonal skills the CEO's in major companies look for," she says. "There are not that many world-class general counsel candidates out there."

Because there are so few of these jobs open in a given year, it is nearly impossible to make any of the generalizations about high-level compensation packages.

At lower levels of the in-house food chain, however, companies are re-evaluating salaries and bonuses. Openings even in second-chair in-house jobs are not as highly compensated, and packages that recruiters and candidates would have rejected six months ago are now seriously considered.

"A lot of people who are looking for jobs have been humbled by the collapse of the dot-coms," says Corinne Cochran, a principal at the search firm Early, Cochran & Olson in Chicago. "They're going back to the mentality of being grateful to have a job."

Practice Areas

Not all practice areas have been hit hard by the recession. Recruiters say the demand, and pay, for intellectual property counsel remains high, a fact corroborated by statistical data.

"We compared the compensation levels between IP-intensive companies and the rest of the population," Parker says. "The IP-intensive companies paid higher."

Lindsey says the reason IP salaries continue to rise is a simple matter of supply and demand.

"The supply isn't getting any larger," he says. "You can't suddenly mint more patent attorneys with 15 years of experience. But the demand keeps increasing, because that's where the money is."

Although not nearly as high-paying as IP, the labor and employment practice area is up as well, in part due to the issues relating to downsizing. Lindsey cautions, however, that this is a short-term trend. technology companies, to the extent they're still around, also continue to offer equity packages and compete aggressively for the top talent.

Compensation Outlook

Compensation issues are moot if companies are not hiring. Many corporations have put existing searches on hold, expecting the first two quarters of 2002 to be rocky.

"I have a number of clients who've told me to call them in July, with a few providing me openings in February," Williams says. "Usually it's the other way around."

In addition to squeezing out bonuses, companies are tightening the fiscal belt through attrition. The extra work is either spread out within the department or outsourced.

The outsourcing sector comes around with every dip in the economy. Although this makes it harder for those out of work to land a job, the biggest thing the gainfully employedhave to worry about for the short term is whether or not they will receive a significant bonus.

If the recession drags on and law firms are forced to roll back recently inflated salary norms, the ripple would soon spread to legal departments. But that's improbable. For now, most companies are trying to control spending across the board in anticipation of a brighter 2003.

Compensation trends are always opaque. Even the best survey data is quickly out of date. The outlook this year, however is particularly cloudy. Until the economy clears up, all bets are off.