March 2004

 The 2004 In-House Counsel Compensation Report

Economic recovery has in-house attorneys considering career moves.  Opportunities are on the rise, but much has changed in the job market since the jackpot days of the late 1990s.

By Michael T. Burr

 

Wayne Kaufman was down and out.  He'd lost his general counsel position when his employer, Music Vision, went bankrupt, and finding a new job in the midst of a flagging economy proved to be nearly impossible.  When Corporate Legal Times spoke to him last year, he described the competition in the job market as "outrageously difficult."

    Kaufman took a two-month temporary assignment with American Express Co., and then finally, in October, landed the position of assistant GC with AIG in New York.

    I'm very happy here," he says.  "AIG is a great company, and the work is interesting."  He adds, "The job market is improving, but it's still very much a buyer's market.  There wasn't much negotiating when I took this position.  It was like, 'This is the position, this is what it pays and here are the benefits.  Thank you very much.'"

    Kaufman's experience isn't unusual.

    More than two years of economic malaise have put the squeeze on employment and compensation trends.  For most job categories among in-house lawyers, salaries and bonuses remained relatively flat for 2002 and 2003.  Further, between company bankruptcies, cutbacks and attrition, virtually any position now looks more attractive than it might have in, say, March 2001.

    "There is still a supply-and-demand imbalance," says Aaron Williams, president of Aaron Consulting, Inc., a St. Louis-based nationwide attorney search firm.  "People have been most interested in just getting a darn job"—and keeping it.

    With an economic turnaround underway, however, job markets for corporate lawyers are improving.

    "Overall we see activity picking up," says Corinne Cochran, a principal with legal recruiters Early Cochran & Olson in Chicago.  "The first quarter is always busy, but now it's more busy than it has been for a couple of years.  People are getting more confident in the economy, and consequently the bar is rising in terms of the people that our clients are seeking."

    Many employers that were standing pat during the recession now are upping the ante with in-house expertise, both in terms of quantity and quality of the attorneys they employ.

    This trend is relieving some of the pressures that have discouraged attorneys from playing the field for better opportunities.  Lawyers are in a better position now to demand more from their current and prospective employers—and companies are more likely to step up to the plate with better compensation packages.

    A few quarters of economic growth, however, don't translate into a hiring boom.  This fact, combined with the recent memory of dot-com era excesses and blunders, has changed how in-house attorneys view their career prospects.

    "A lot of people would like to pursue better opportunities, but they are more focused on quality-of-life issues than they were before," Williams says.  "We are seeing people leaving the company or leaving law altogether, or moving to a location that they wouldn't have considered before, because they have realized it has the quality of life they want."

    How such changing priorities might affect compensation packages is anyone's guess, but studies conducted by three major research organizations—Altman Weil Inc., Mercer Human Resource Consulting and PricewaterhouseCoopers (PwC)—provide some clues about what compensation trends corporate attorneys are encountering in the market for in-house counsel positions.  The results of these studies, combined with frontline reports from legal recruiters, provide insights into career opportunities in 2004 and beyond.

BIGGER IS BETTER

When corporate attorneys consider where they might score the most lucrative in-house positions, the easiest answer is the biggest companies pay the biggest salaries—especially for general counsel.  Study data show a strong linear correlation between organization size and compensation for top legal positions.

    "Most of the time, it's the size of the company that drives the size of the compensation package," Cochran says.  This applies particularly to salary and bonus checks, but it's generally true for noncash compensation as well.

    "Perks start in the executive suite,"  Cochran adds.  "If the CEO doesn't get a car or an employment agreement, then nobody does."

    Across most industries, regions and practice areas, salaries for in-house counsel remained flat in 2003, while bonuses and other incentives declined.  This is partly attributable to weak bottom-line performance for many companies, but it also reflects changing trends in incentive compensation.

    Stock options—all the rage in the late 1990s—have fallen out of favor for job candidates and employers alike.  "As the economic times have changed, the value of stock options decreased," says Kathryn Parker, a director with PwC in New York.  "We have seen a shift away from plans heavily laden with options.  Candidates are asking for higher salaries now."

    Likewise, employers are viewing stock options in a less favorable light, given rising concerns about governance, accounting practices and the dilutive effects of stock options.

    Interestingly, however, top in-house lawyers bucked this trend in 2003.  The value of their incentive pay grew strongly—by almost 10 percent—while their salaries remained virtually flat.  This trend supports the notion that, increasingly, the general counsel is considered an executive officer, as opposed to just an organization's senior lawyer.

    "GCs are becoming an even more critical part of the leadership team," says Peter Gosule, founder and managing director of the PeterSan Group Inc. in New York.  "Like other senior executives, it's important that a GC's compensation is tied to the health of the company—especially now, amid all the governance issues that companies are facing."

    On the whole, however, alternative compensation declined in 2003, and this holds true for noncash perks.  "The trend has been toward fewer perks at all staff levels," Parker says.  According to the PwC study, for instance, slightly fewer companies reported offering a company car in 2003 (down to 31 percent, from 33 percent in 2002).  The same is true for athletic club memberships (27 percent 2002, versus 22 percent in 2003) and professional dues reimbursements (95 percent versus 85 percent, respectively).  Only in a couple of narrow areas did noncash perks increase slightly—for example, wireless phones for legal assistants, and the dubious perk of toll-free technical support.

    The anti-perk/anti-bonus trend could reverse itself again, however, as the economy improves and as competition for top legal talent intensifies.  "Prospects will be entertaining offers from other companies," says "Clint McDonnell, an area vice president in the Dallas office of Ajilon Legal.  "So while a company has someone in the door, they need to get creative about alternative compensation."

    For instance, employers might relax eligibility policies for bonus pay.  Where newly hired attorneys previously might not have become eligible for a bonus until the second or third year of employment, some employers will accelerate that timeline.  Others are offering signing bonuses and more generous relocation packages.  "Signing bonuses have come back, after a few lean years," Grosule says.  "Also, with the real estate market the way it is, employers are offering housing assistance to help candidates buy and sell homes when moving from one region to another."

    Other companies are offering nontraditional perks.  "In the auto industry, I've seen employers offer huge discounts on vehicles, essentially giving cars away," McDonnell says.  "On the insurance side, companies are paying car insurance premiums for the entire family."

    Finally, with so many business plans turning sour during the recession, job candidates are seeking parachute arrangements with their new employers.  "We are seeing more GC candidates who are concerned about the financial well-being [of their prospective companies]," Williams says.  "The smart candidates are pressing for an employment agreement or severance package."

    Moreover, employers are becoming increasingly open to such arrangements than they have been in the past.  "I have seen attorney candidates negotiate a six-month to one-year guarantee on their base salary,"  McDonnell says.  "A hiring manager might see that as an attractive, low-cost way to secure the talent they need."

    Companies are approaching such arrangements cautiously, however, in the context of recent scandals and the stigma associated with golden parachutes.

    "Companies are being more receptive to offering what is fair to get the catch they want,"  Williams says.  "But the wording that goes into employment agreements is tightening up.  Increasingly I see language around ethics, behavior and reporting issues."

    In any case, the importance of severance packages might wane as the economy improves and companies find more solid footing.  In addition, the plagues that caused so many failures at high-tech startups have done less damage at well-established companies—which now represent the most attractive employers.

    "Candidates want to know they are going to a company that is stable," says Stuart Angowitz, a principal with Preferred Placement Inc., a New York-based attorney search firm.  "People don't want to be forced onto the job market these days, so companies with track records of stability are drawing significantly credentialed attorneys."

WHERE THE MONEY IS

Compensation practices tend to be company specific, but some patterns can be discerned when analyzing the data by geography, industry and practice area.  According to the study data, the biggest compensation packages are found in the Northeast, Mid-Atlantic and West Coast.  General counsel in the Southwest saw a big jump in their paychecks, percentage wise, with the average top lawyer earning 23.3 percent more in 2003 than in 2002.  But in absolute dollars, those in the Mid-Atlantic enjoyed the greatest increase—9.8 percent over 2002, almost double the national average growth rate of about 5 percent.

    Of course, the cost of living in some of these regions—especially in the metropolitan areas—consumes much of the value of those growing compensation packages.  "The adjusted median total cash compensation for many lawyers in these cities is well below the absolute dollar value,"  Parker says.  In other words, while the average in-house counsel in Manhattan might earn $204,000 a year, that can only buy $81,000 worth of overpriced lattes.  Conversely, some cities offer real bargains.  The average Houston lawyer, earning $164,000, can chug $176,000 worth of Lone Star longnecks.

    From an industry perspective, the most lucrative GC positions are found in consumer products and services, banking, insurance and telecom.  "Telecom companies are having hard times, so it's interesting to see that GCs in that industry are among the highest paid,"  Parker notes.  Compensation growth rates, however, reveal that GCs gained the most ground in the insurance business, followed by the chemical industry.

    General counsel at health care and health insurance companies, however, saw their average compensation fall by 4 percent between 2002 and 2003.  This trend bears watching as health care companies assimilate the mandates of Medicate and patient-privacy legislation.  In addition, compensation trends in the financial services industry merit attention, as firms staff up to deal with compliance needs.  "Financial services institutions are hiring attorneys again,"  Angowitz says.  "This is especially true in the compliance area, which has become critical due to recent issues involving analyst research conflicts and mutual funds trading."

    To a degree, industry trends might be correlated with regional patterns, but the study data are ambiguous on this point.  Lawyers at banking and financial services firms earn some of the highest salaries, and obviously those industries are overrepresented in New York.  But the relatively dispersed nature of most industries obscures any clear regional correlation.  In any case, the experience in the field (and simple logic) suggests that areas strong in certain growing industries are benefiting from their resurging success, with a predictable effect on job markets and compensations.

    "The pharmaceutical industry is pretty hot, and a lot of pharmaceutical companies are in New York and New Jersey," Gosule says.  "Some of the healthier pharmaceutical companies are adding people to their legal departments—particularly IP specialists."

    In general, IP lawyers rank among the highest paid in-house counsel, but the best-paying practice area in 2003 was antitrust and trade regulation, followed at some distance by international law, securities and trademark specialties.  Real estate lawyers and industry specialists rank near the bottom.

    Recruiters and consultants warn, however, that such data should be taken with a large grain of salt.  "Surveys are entertaining and aren't bad for defining the ballpark, but we advise clients not to take them too seriously,"  Williams says.  Knowing what the average lawyer makes can be misleading, because each company sets its own standards and pay scales.  "It's more important to understand how compensation of attorneys at your company compares to compensation for other employees."  Such an analysis can provide a more convincing basis for negotiation.

BEYOND THE MONEY

Attorneys' bargaining positions are changing due to a variety of factors—some external and market driven, and others more internal and personal.  According to recruiters, attorneys considering their career options are giving increasing weight to factors less quantifiable than cash compensation.

    "For the most part, our candidates are focusing on long-term career opportunities and often perceived lifestyle rewards,"  Angowitz says.  "People change jobs for a number of reasons, not just compensation."

    Competition in job markets, however, is always an important factor in the decision to seek a new position or even to negotiate a better package with a current employer.  If competition is fiercer than normal, attorneys generally recognize their negotiating position is weaker than it would be during a time of sparse competition.

    Now that the economy is improving, though, opportunities should follow.

    "We've got a glut in the short term, but I see this think breaking out as early as the second quarter [of 2004],"  McDonnell says.  "It's the old economics.  Demand will continue growing for top legal talent, but the supply will diminish and force upward pressure on compensation packages."

    Opportunities are already improving in many areas, but the demand level has been modest so far.

    "The upturn in the economy has resulted in some departments, predominately at Fortune 500 companies, expanding staff or filling the positions of people that have moved on,"  Angowitz says.  "There has definitely been an increase in activity, but it still is not yet like 2000."

    Of course, nearly everything about the job market has changed since the last millennium ended.  However, one thing has remained the same:  Talented attorneys—even those who are down and out—still face a vast universe of career alternatives.

    "If you are a good person in a bad situation, which is the case for a lot of lawyers, you just need to hang on,"  says AIG's Kaufman.  "You have a good skill, and ultimately your situation will change.  Do temp work if you can, and rely on your friends for emotional support."

    Above all, he says, "Don't get dejected.  You've still got game."