If last year's GC Compensation Survey showed the aftereffects—the hangover, if you will—of the deepest trough of the recession, this year's results show that chief legal officers made steady gains and recovered some momentum. [See full survey results here.]
Trends? Pretty much what you'd expect. Stock options continue to fall out of favor (even though some lucky in-house lawyers are still getting those fat options), and cash remains king. Instead of getting bonuses just for being there, chief legal officers are getting extra cash, or, in the latest parlance, nonequity incentive compensation, which is tied to corporate performance goals. These payments, which rose by double digits, make up an increasing part of a chief legal officer's pay packet. And restricted shares remain the most popular way to reward high performers with equity. In all, the word is diversity, rather than any one type of compensation.
2011 GC Compensation Survey:
Apart from Keane's rise to the summit, top lawyers did pretty well for themselves—as long as their boards and CEOs thought they did right by their companies. Total cash payments surged 18 percent in 2010. Ninety-three of the 100 top-paid general counsel received nonequity incentive compensation, while the number getting discretionary bonuses dipped from 23 to just 20.
That doesn't surprise compensation experts, who have seen traditional bonuses cave in recent years under the weight of a battered economy. "During challenging economic times, companies are much more likely to require that compensation be earned through performance rather than granted based on past work," says James Wilber, a principal of Newtown Square, Pennsylvania-based Altman Weil, Inc. "When that happens," he says, "the at-risk component of compensation increases, and base compensation stagnates or even decreases."
General counsel compensation has two legs: individual performance and the overall success of the corporation. You want your lawyers "living or dying with the success" of the company's business strategy, says Vincent McHugh, managing director of New York-based compensation consultancy Empsight International, LLC. In other words, just reducing litigation costs isn't going to cut it; the GC's rewards are tied to whether the company has had a good year. And many public companies did. Despite slow job creation and modest overall economic growth in the economy at large, the stock market surged in 2010.
Truth be told, our latest survey reveals more of an undoing of the damage of the previous year than any great leap in compensation levels. For a decade preceding the Great Recession, GCs enjoyed increases that bore no apparent relation to the economy's strength. But last year we learned that what goes up must come down—even when it comes to what had been ever-rising general counsel pay. In last year's survey, everything took a hit. Bonuses were down, and so was total cash compensation. The average outright stock award plummeted by 11 percent.
Although the gains of this year's survey results have to be digested in that context, an uptick is still an uptick. The worst seems to be over, and experts say that corporations are rewarding their executives for getting them through the recession's darkest days. "A lot of these executives who have been around for several years, who are seeing these pay increases, are the executives who were either brought in to bring the company out of the recession or who have survived it," says Aaron Boyd, head of research at Equilar, Inc.
"They did well enough where they were able to remain with the company, so I think we're seeing companies begin to reward them for that."
But the biggest surprise this year is the rise of women to preeminent spots on our roster of top earners. Altria's Keane is a bit of an outlier who exemplifies the trend [see accompanying charts]. Keane received a $5.7 million nonequity incentive payment that catapulted her from number 34 in the previous survey all the way to number one.
In fact, 14 women made this year's list, up from 13 on last year's survey. Excluding this year's survey, only 7 percent of female GCs have made the list since we started charting top lawyer compensation. Why? Denburg says that the legal environment was so different back then that many corporate leaders were not yet even asking themselves whether women could run big law departments. But powerful figures such as Pfizer Inc.'s Amy Schulman and PepsiCo, Inc.'s Maura Abeln Smith have since proved that they can. Denburg says that there have been deliberate changes in the profession recognizing the worth and value of having a full team—which includes women. "Ability is not in question," she says.
When it comes to advancement, female in-house lawyers may actually be faring better than their law firm counterparts. According to a survey conducted in 2010 by the Minority Corporate Counsel Association, there were 94 female general counsel in Fortune 500 companies—or roughly 19 percent. A recent NAWL survey showed that just 16 percent of women were equity partners in Am Law 200 firms. And boosted by Keane's hefty compensation package, the average total cash compensation for women in our survey—$1.96 million—was actually higher in 2010 than the $1.84 million average for the total pack. Living up to the old Virginia Slims ad, female GCs have truly come a long way. "I am delighted that the management of Altria has elected to compensate Denise based upon her abilities, and I hope that this development is the beginning of the era where gender disparities in compensation end," said Brandon Fitzgerald, MCCA general counsel, in an e-mailed statement. "Far too few women are in positions where they are eligible to obtain the financial rewards that would accrue to a similarly skilled man."
A spokesman for Altria declined to grant an interview with Keane for this story. But he noted that the GC's bonus was awarded as part of a long-term incentive package covering a three-year cycle that ended last year. According to its proxy filing with the Securities and Exchange Commission, Altria's compensation committee has determined that alternative approaches would result in "diminished retention value and clarity of long-term performance incentives." As with other corporations, Altria's long-term incentive plan includes both individual and business performance components.
Although Altria's SEC filing withheld detailed information as to the 34-year loyalist's individual performance measures, undoubtedly she has had a hand in managing Altria's monstrous ongoing tobacco litigation. In Florida alone, Big Tobacco is engaged in what looks to be a never-ending multimillion-dollar battle. With a defense track record of losing two out of three since the original trial in 2009—and 8,000 other plaintiffs awaiting trial—Keane may very well be earning every dollar of her pay.
While Keane is this year's overall star, other GCs took home big prizes, too. At the extreme upper end of the option awards spectrum, Liberty Media Corporation's Charles Tanabe put the rest of the field to shame with a $16.5 million award. And Apple Inc.'s top lawyer, Bruce Sewell, received stock awards worth a whopping $28.4 million. He can thank the nearly 15 million people who bought iPads last year.
These gigantic sums drove the average option award up 39 percent in 2010—to $901,478—with 69 GCs receiving them. Seventy top lawyers were granted option awards the previous year. To put this in perspective, 87 of the top 100 GCs received options in our 2008 survey. The average outright stock award (as opposed to options) jumped 33 percent—to $1.6 million.
In the past, a big driver of fat pay envelopes was the stock option cash-out. After a lull, our chief legal officers are making up lost ground. Stock options exercised and value realized on stock awards soared 86 percent this go-round. In 2010 the average realized was almost $2.5 million.
Making more modest gains, base pay rose from $619,013 to $622,461, which experts did not find surprising. "Salary is something that tends to remain flat," says Boyd. "You've seen a lot of salary freezes in the previous years." But as the economy continues to gain steam, corporations are going to increasingly reverse those trends companywide. Wilber says that he has started to hear from general counsel who are concerned that they may not be keeping up with competitors' trends as far as salary increases for their own lawyers go.
Any slack in salary for top legal officers was picked up by their bonuses, whether they were new-style nonequity incentives or the old-fashioned discretionary variety. "Total compensation is up in double digits, and that's being led by cash bonuses," says Boyd. In fact, after slipping almost 20 percent the previous year, average total cash bonuses came back to save the day for top lawyers in 2010—jumping 29 percent, to $1,219,586. For the top 50 earners, combined cash bonuses/nonequity incentives made up roughly two-thirds of their total cash compensation. For the few who earned traditional bonuses, the average was up a mere 19 percent. The more popular nonequity incentive compensation by itself rose about 28 percent.
Executive pay experts may not have been surprised to see GC compensation recover in 2010, but what did surprise them was the amount of pep in the step of GC salary packets. "It's no surprise coming into 2010, with the way the economy has improved, with the way the market has improved, to see pay go up," says Boyd. "But I think the percentage levels—the level at which pay has rebounded—has surprised quite a few people." Whether the market will continue to drive compensation back on course remains to be seen.
The unsettled economic landscape makes it difficult to predict what we'll see next year. New laws and regulations have injected some uncertainty into the mix. Still, at least one by-product of the new era of transparency under the Dodd-Frank Act that made corporations anxious last year turned out to have more bark than bite. In January the SEC adopted its rules for Say on Pay—which gives shareholders a nonbinding vote on compensation packages for the top five highest-paid executives. "We've gone through the period where most companies have had their votes," says Boyd. He has seen companies tweak their compensation packages in anticipation of difficult Say-on-Pay votes. "They have made adjustments here and there to make sure that their pay is aligned with performance and that shareholders see that," he says.
But out of about 2,500 companies that have voted, Boyd says only about 30 of them have failed. He says the majority of compensation packages have garnered 80-90 percent of the shareholder vote. A simple majority is all that's required for passage. "This is during a period when companies saw growth and improvement, so that's not a big surprise," continues Boyd. He says if shareholders had been voting on compensation two or three years ago, the results might have been different.
This much seems to be clear, however: Performance-based compensation is here to stay. And although Altman Weil's Wilber doubts that we'll see double-digit rises in incentive payments forever, he predicts overall compensation will continue to grow slowly. "Much of the growth will be in bonuses, although we are likely to see small increases in base salary as well as the economy continues to slowly gather momentum," he says.
Stronger stock prices, higher base pay, and healthy bonuses? Okay, so general counsel will continue to have to do well on their report cards to realize all three. But in an uncertain economic climate, holding one's own and doing a little better isn't such a bad deal.