As dedicated readers of InsideCounsel know, each month the magazine features a profile of a general counsel. In these profiles, reporters routinely ask their interviewees this question: What advice would you give to a young lawyer aspiring to become a GC?

Admittedly, interviewees have stumbled over this particular question during the past year. Many current GCs say that, these days, acquiring any in-house position takes immense talent and effort, not to mention a bit of luck. And as debt-saddled law school graduates face a relatively bleak job market, many GCs recommend that prospective attorneys supplement their law degrees with business degrees to boost their attractiveness to corporate legal departments.

What makes finding an in-house position even tougher, both for new lawyers and lawyers who already have jobs, is the widespread feeling among employers that the legal talent pool is drying up.

“Our most recent survey showed that 49 percent of lawyers polled by Robert Half Legal said it’s very challenging for their companies to find skilled legal professionals today,” says Chad Volkert, executive director of Robert Half Legal.

One thing is clear: As companies emerge from the recession and slowly increase their legal hiring, attorneys searching for new careers must stand out among the competition. Legal recruiters and consultants say there are two key attributes job applicants must have in order to land a desired in-house role. First, they must be business-minded. And second, they must be able to wisely manage projects and budgets. With these skills, in-house counsel may increase their chances of not only getting a job, but also being rewarded through compensation increases.

On the following pages, experts share their research and predictions for the 2012 in-house hiring and compensation climate. Read on for insight that may help you increase your professional value.

All data are from HBR Consulting’s 2011 HBR Law Department Survey unless otherwise noted.

Hiring Outlook

The results of the 2011 HBR Law Department Survey, conducting by HBR Consulting, which provides consulting services to law firms and law departments, found that companies are increasing their internal legal spend and reducing their reliance on outside law firms, which, according to experts, indicates that in-house hiring is on the rise.

“Law departments are looking to bulk up their staff internally as a cost-saving measure, and also to provide more effective services to their companies,” says Lauren Chung, a senior director at HBR Consulting. Chung says more than 80 percent of the 219 survey participants, 70 percent of which are Fortune 500 companies, noted that their legal needs are increasing, and more than 40 percent of survey participants expected to increase the number of lawyers in the U.S. and outside the U.S. this year.

The massive recession-related layoffs in 2009 and 2010 spread corporate legal departments thin, and attorneys took on new responsibilities with fewer resources at their disposal. With the economy finally on the upswing, law departments are looking to hire new help. But experts caution that companies aren’t necessarily hiring attorneys.

“There seems to be more of a push to hire more paralegals and contract managers,” says Vanessa Vidal, president of ESQ Recruiting. “When it comes to hiring attorneys, it’s still highly selective.”

In general, companies are seeking the most competent, cost-effective applicants to staff their legal departments. They’re expressing interest in bringing project attorneys and other support staff onboard for specialized assignments in order to keep overhead low.

But as in years past, attorneys who specialize in in-demand practice areas are seeing a spike in job openings and hires. James Martin, a consultant at DHR International, says legal departments are continuing to recruit lawyers who excel in particular areas from outside law firms their companies have worked with in the past, and from other companies. He notes that companies are strategically selecting key talent in order to diversify the skill sets within their legal departments. “They’re trying to duplicate having a general practice inside the law department so that they can do much of the work in-house before needing to send it out,” he says.

Today, the ideal candidate for an in-house position, according to Vidal, is really a businessperson who happens to be a lawyer. “This is in response to legal departments wanting to add value and demonstrating to the C-suite that they have what it takes to handle legal matters in a manner that contributes to the bottom line,” she says.

Law firm salariesCompanies are most interested in mid-level and senior lawyers with four to nine years of experience. Additionally, they’re seeking jack-of-all-trades attorneys who can work independently. “There are a couple of larger law departments that do in fact recruit out of law school, but honestly, that’s the minority,” says Dan DiLucchio, a principal at the legal consulting firm Altman Weil Inc.

While that might not be great news for recent law school graduates, experts do have some advice for prospective in-house attorneys.

Martin recommends that new grads first pursue law firm positions, where they can begin to form corporate relationships. “When you’re working for a client, make sure they’re aware that you are working very hard on their behalf because you never know when they may want to reach out to you to bring you in-house. They are not going to select you if you’re mediocre,” he says.

Volkert adds that law school students and fresh graduates should try to secure internships in corporate legal departments. “Also network—network like crazy,” he says.

Compensation Increases

Experts are happily reporting a moderate increase in in-house salaries. According to the 2011 HBR Law Department Survey, the average base salary increase among all legal department staff levels in 2011 was 3.3 percent, up from an average increase of 2.6 percent in 2010. Base salary increases had drastically slowed in 2010, from 3.4 percent in 2009 and 5 percent to 6 percent in 2004 through 2008. The latest increase indicates that companies are continuing to lift salary freezes. Additionally, companies are recognizing that they need to be more competitive with law firms, which traditionally have doled out larger salaries.

Average base salaries“We definitely are seeing an in-house market where employers are willing to increase compensation to attract top attorneys and legal professionals, in particular within the hottest practice areas: litigation, IP, labor and employment, as well transactional,” Volkert says.

Martin agrees. “Before, people would leave an outside firm to go in-house for quality of life, not as much as compensation. What we’re seeing now is that companies are saying, ‘People have financial obligations, so we have to compensate them on an even par with what they’ve been making.’”

Top-paying practice areasHBR Consulting found that GCs had the highest average base salary increase at 6.1 percent. However, recruiters and researchers say other in-house lawyers, particularly those in specialized practice areas and those with management responsibilities, also are seeing an uptick in their base salaries.

“What I’m seeing as the highest paying are the corporate folks with M&A backgrounds, compliance folks and folks with international backgrounds,” Vidal says. “In terms of industries, health care and pharmaceutical are definitely on the higher-paying scales.”

Chung says that overall compensation increases have largely depended on company performance over the past year. “It’s an overall indication that companies are doing better and are able to reward their staffs better,” she says. However, she notes that the expected growth areas in terms of legal expertise don’t necessarily correlate with the highest salaries.

Whether salaries will continue to increase in the coming years remains to be seen, and experts are wary of making predictions.

“The economy right now is like an old car that was fixed on the cheap. It’s unpredictable, it could break down at any time, and because the market is so unsettled, it makes it very difficult to predict what we’ll see next year,” Vidal says. “Chances are we’ll see more of the same as 2011, and base salaries will likely continue to rise if the economy car continues to run without stalling.”

In-Demand Skills

The needs of corporate legal departments change year to year depending on company growth and goals, new industry regulations and other factors. This year’s top three most in-demand practice areas among corporations that participated in the 2011 HBR Law Department Survey include regulatory, international, and employment and labor. “We can infer that potentially those would be some of the areas where companies will be looking to hire,” Chung says. Other top in-demand areas include litigation, compliance and patents.

Researchers and recruiters who were interviewed for this story agreed that international law in particular will be a strong growth area.

“We’re assisting corporations that are moving outside the U.S. and need lawyers who have the day-to-day knowledge of the legal market in those marketplaces,” Martin says, adding that many of his clients are looking for lawyers in Asia and India.

Vidal agrees that companies are pushing for international expansion as a competitive strategy to expand their core business and increase their market share. “I’m seeing patterns where there’s a decentralization of corporate legal departments, and by that I mean that they’re increasingly hiring foreign counsel to add to their corporate legal departments,” she says. “In looking for opportunities in some of the most popular emerging markets, you’re looking at Brazil, China, Vietnam, Mexico, Korea and the Middle East.”

Meanwhile, Volkert says attorneys with e-discovery expertise are still top contenders for in-house openings. As data continues to increase exponentially with the development of new technologies, companies are looking for lawyers who can effectively manage e-discovery and document review with a smart process that saves money.

“Are they implementing best practices? Are they working with third-party providers to build out a strategy of what the e-discovery process looks like for their company in order to be proactive versus reactive?” Volkert asks, noting that these are common questions companies ask themselves about their in-house counsel.

Susan Hackett, chief executive and chief legal officer of the consulting firm Legal Executive Leadership and former GC of the Association of Corporate Counsel, agrees that lawyers looking for in-house positions must prove to prospective employers that they can think proactively.

“There are great lawyers who understand how to deliver great legal services, but we’re now working in an environment where the experience you have and the quality of your legal work are really not enough anymore,” she says. “What’s going to distinguish people is how efficiently they can get the work done, how cost-effectively they can get the work done and whether they can think of innovative ways to make the outcome more productive.”

Under Pressure

Now more than ever, companies want lawyers who work smarter. They want lawyers who understand business, how to bill matters differently, how to staff matters differently, and how to examine what they’re doing and think about better ways of getting it done.

“Lawyers are under greater pressure internally by their clients to produce and react and be timely,” DiLucchio says. He notes that being in tune with the business side is an essential—if not the essential—ingredient in being a successful in-house lawyer. “You can find a million lawyers who can provide substantive, quality legal services—that’s really just the ante to get into the game. The real advantage is knowing the business, knowing how to work the clients and helping them achieve their business objectives.”

Focusing on preventive law is one way lawyers can demonstrate to management that the law department can be a source of revenue for the company. “Preventing problems before they arise and identifying areas of risk is a way to help companies save money,” DiLucchio says. “Some companies are being more aggressive at protecting, for example, their intellectual property.”

But aggressively defending companies’ intellectual property can be expensive, and although they may be ambitious, legal departments are still dealing with lower budgets in the wake of the recession.

“What most people are realizing is that even with the downturn and even with the cuts in budgets, legal work isn’t going to suddenly get cheap,” Hackett says. “What you need to be able to do is to budget it and then stick to the budget more effectively.”

Managing budgets continues to be a top challenge for the in-house bar. But experts say it’s the lawyers who are transforming their thinking and applying creative solutions to problems who are reaping the rewards for their hard work.

Salary increases

Hackett suggests that in-house counsel shift their focus from compliance to enterprise risk management to help management understand the monetary worth of the law department. “The more time they spend on these kinds of risk-level conversations, the more value senior management and board leaders give to the in-house function,” she says.

Experts agree that the most successful lawyers, both in terms of job security and compensation, are taking on increased responsibilities on the business side of their companies.

“Advancement used to be very linear—you started at the bottom and you moved up successive levels toward a much higher goal,” Hackett says. “Now you see more people latticing, where they go side to side and across different kinds of directions in order to rise by going sideways.”

Bigger Bonuses

In addition to salary increases over the past year, bonuses are returning to pre-recession levels. The 2011 HBR Law Department Survey found that the average bonus increase among attorneys was an astounding 25.7 percent, with GCs receiving an average increase of 18.3 percent. The average cash bonus for all attorney levels was $67,000; by comparison, GCs received an average cash bonus of $370,000.

Cash bonusesChung says that most survey respondents said bonuses are dependent on company performance. Other experts say their clients are reporting the same.

“It’s a combination of a merit bonus based on overall quality of work performed by the in-house counsel, and it’s an overall performance bonus based on how the company’s doing,” Martin says.

But Vidal notes that bonuses come at a price. “Gone are the days of earning a bonus at your boss’s discretion,” she says. “In-house lawyers are held accountable for the level of performance and their contribution to the bottom line. By the same token, they’re asked to share the risk of their companies’ performance. You can see that across the board. Luckily, the economy improved this year. Many companies performed well enough to be able to share the reward.”

Total cash compensation, comprising base salary and cash bonus, increased across all attorney levels by an average of 7.5 percent, which was a considerable increase from the 2010 average increase of 5.5 percent. The average total cash compensation was $245,000 across all attorney levels. GCs saw a 13.7 percent average increase in total cash compensation, with the average amount being $776,000. Notably, bonuses accounted for more than 40 percent of the average total cash compensation for GCs.

“What’s driving these double-digit increases in total cash compensation and making up for this lack in salary for top legal officers is the bonus,” Vidal says. “The cash bonus is the gravy that’s kept salaries from going dry.”

Precious Perks

Companies may be delivering slightly larger salaries and bonuses to their law departments, but they are increasingly trying to offer other creative forms of compensation to in-house counsel in order to attract and retain talent. These benefits include flex time, telecommuting, more vacation time, free gym memberships and more.

“They’re trying to provide more perks and more flexibility to perhaps offset lower salaries,” Vidal says.

So although raises might be scant, lawyers can use these incentives as bargaining chips for increased compensation.

“Companies have more flexibility with variable pay structures for current personnel than starting salaries for new hires,” Volkert says. “One of the things we talk with candidates and clients about is having an open communication about that dialogue as far as what those bonus options might be, or how the compensation can be structured going forward.”

Experts also say that companies are continuing to offer lawyers traditional long-term incentives, such as deferred cash plans, stock options and restricted stock.