Many senior-level in-house lawyers believed they would be getting something special under the Christmas tree in 2004–a big fat raise.

And it wasn’t a far-fetched assumption. Most had been working nonstop trying to deal with the myriad of new responsibilities brought forth by Sarbanes-Oxley, and have been doing so with smaller budgets and fewer staff. In addition, they were under pressure from board members, shareholders and their CEOs to ensure regulators had no reason to pry into their businesses. On top of that, the GC role has morphed into one of the most important positions in corporate America.

Long gone are the days when adventurous CEOs, riding the wave of the so-called “New Economy,” consummated deals, entered into strategic alliances and employed creative accounting measures without getting the green light from their top lawyers.

Corporations in 2004 also appeared to have much more money in their coffers to reward their top attorneys. Most companies finally shrugged off the economic malaise that had stifled growth for the past four years. Companies were no longer terminating workers by the thousands; some even were looking at ways to grow their businesses through acquisitions.

A few daring companies tested the IPO waters. It makes sense, then, that CLOs and their senior-level staff should have been rewarded with a healthy raise last year. Unfortunately, it didn’t happen. According to Hildebrandt International’s “2004 Law Department Survey” the median total cash compensation for CLOs in 2004 increased by just 4.4 percent from 2003.

Altman Weil’s “2004 Law Department Compensation Benchmarking Survey” reported an increase of 3.3 percent (when adjusted against the Consumer Price Index, that percentage drops to 1.29). The anecdotal evidence seems to support these numbers.

“In general, in-house salaries have gone up a little bit, but nothing dramatic,” says Frank D’Amore, chair of Major, Hagen & Africa’s global in-house practice group. “It’s keeping up with or is a little more than inflation.”

Not only did salaries remain relatively flat at the senior level, but stock options also have fallen out of favor in corporate America–in part because companies now have to recognize options as expenses on their balance sheets. And that can have a significant impact on profits. For instance, Intel recently reported it would have had to reduce its second quarter 2004 profits by 17 percent if it had to expense stock options. Naturally, that makes companies less generous with options packages. Those GCs lucky enough to have options, though, saw a healthy rebound in the value of their options in 2004.

The reason senior-level in-house salaries didn’t increase significantly in 2004 was simply that many CEOs still view the legal department as overhead. General counsel operate a department that is a huge drain on the company’s bottom line, and often have difficulty measuring their successes in dollars and cents. So when the economy rebounded, CEOs were much more likely to invest their newfound dollars in departments that make money for the company, rather than spend it.

“There is no way GCs are going to get huge raises by going into the CEOs’ offices and saying, ‘Hey, the economy is better and we are making more money, so we should get a 10 percent raise,’” says Jonathan Bellis, a director at Hildebrandt and the author of its benchmarking study. “That isn’t going to happen. Just because the economy is getting better, it doesn’t mean the pressure is off GCs and their law departments.”

Although senior-level in-house counsel haven’t benefited from the economic resurgence, it appears mid-level in-house attorneys have. According to various compensation reports, median total cash compensation for mid-level lawyers increased anywhere from 6 percent to 10 percent.

D’Amore isn’t surprised by this number. He believes law firms are doing a much better job of retaining associates than they have in the past. In addition, law firm lawyers saw firsthand how quick corporations were to dispose of in-house lawyers during the economic downturn.

And with the advent of Sarbanes-Oxley, young attorneys slaving away in law firms realize that perhaps life on the other side isn’t as easy as they once thought. All of which means that companies have to dig a little deeper into their pockets to entice new talent, as well as to retain existing talent. “Companies no longer are assuming that someone will come in from a firm and be willing to take a pay cut,”D’Amore says. “They understand that they have to be more competitive on the lower end with respect to total compensation to get people to move from a premier law firm to an in-house job.”

Another reason for the up-tick in total compensation in the mid-level is that companies are starting to bring back the much-loved bonus. For the past few years, those in the mid- to lower-level positions in legal department often received meager bonuses at best. That has changed. According to Altman Weil’s report, for instance, the median bonus for senior attorneys jumped from $16,500 in 2003 to $22,000 in 2004. All of which suggests in-house lawyers are starting to regain control of their careers after a long period when most were just happy to be employed.

“The data seem to reflect the general upswing in the nation’s economy over the past year or so and appear to signify a movement away from a strong buyer’s market in which in-house lawyers have found themselves since 2000,” notes Altman Weil Principal James Wilber. Over the course of the next few pages, CLT has compiled some of the more interesting in-house compensation data.

These data not only will help you better understand how compensation in the inhouse legal market is changing, but also will provide you with a benchmark against which to measure your own compensation package.

Download the 2005 Compensation Survey