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.
Of course, no matter how well a company pays a talented lawyer to stay put, there will always be a pasture that's greener. Of the top 20 earners on last year's list, six have since left their positions. At least three of the six have returned to private practice. Advanced Micro Devices Inc.'s Thomas McCoy, Cigna Corporation's Carol Petren, and the Federal Home Loan Mortgage Corporation's Robert Bostrom took positions with prominent law firms.
That's the bad news on the pay front. But besides failing to meet targets and an anecdotal surplus pool of labor, why did GC compensation flatline last year? In three words, it's the economy. Under the circumstances, Jim Wilber, a principal of Newtown Square, Pennsylvania–based Altman Weil Inc., wasn't surprised to see compensation dip. "The big picture with corporations is that this past year has been one of retrenchment, after some positive movement the year before," said Wilber in an e-mail. "We have all come to realize that the recovery is coming along slower than we had hoped," he said, adding that companies remain very wary about hiring. And what's more, Wilber explained, big pay increases for executives could be seen as out of sync when virtually everyone else in the company is struggling.
On a related note, poor share performance also negatively affected executive pay last year. After a 12-month roller-coaster ride, the stock market closed out 2011 almost exactly where it started. For companies whose stock price struggled, their GC's pay went down, too. Equilar's Boyd says, "The move to giving more pay in the form of equity has made executives larger shareholders—with the desired effect of aligning their pay with the overall performance of the company."
The desire to encourage that alignment led to mandatory shareholder votes on pay. The Securities and Exchange Commission's rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act's say-on-pay provision went into effect last January. The rule gives shareholders a thumbs-up or thumbs-down vote on compensation packages at least once every three years.
Shareholders have taken those measures to heart. They're going through pay packages with a fine-toothed comb, looking for strong links between incentive programs and performance that affected share price. Shareholders also looked for evidence of cutbacks on poor pay practices that had become the norm. Say-on-pay "has created a lot more engagement," says Boyd. "Companies are certainly taking it seriously." Although it's harder to directly link a GC's performance to financial results than it is to tie the company's performance to its CEO or CFO, Boyd says that lawyers do tend to get lumped together with those executives.
Thirty-eight public companies—or about 2 percent—failed their inaugural round of voting. According to executive compensation consulting firm Semler Brossy, the results in 2012 have strongly resembled those of the previous year. As of June 30, about 50 companies had failed their votes, or less than 3 percent of the 1,700 companies who had held them.
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