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american lawyer media news service ge’s benjamin heineman: Tops list with $3.9 million in salary and bonus in 2002. In 2002, the board of directors at The AES Corp. took herculean steps to put the company back on track. The Arlington, Va.-based energy business’ stock price had lost 87% of its value in 10 months and the company was fighting a myriad of legal problems. Desperate to change course, the AES board, following the advice of outside consultants, ordered several changes, including sharply changing the compensation structure for its senior management. This resulted in AES rewarding its top executives with performance-based bonuses, instead of stock options, and, as a consolation prize, a more industry-competitive salary. As a result, AES general counsel William Luraschi received a 262% raise, receiving $706,767 in salary and bonus last year. That money earned him a spot on Corporate Counsel magazine’s 2003 GC Compensation Survey, a study of what the 100 highest-paid legal heads at Fortune 500 companies are making. AES thought, Luraschi said, that “in this time of crisis, I would assume some additional responsibilities to return the viability of this company.” It seems to have worked. As the GC took on more business functions this year, as well as more litigation management and increased financial-reporting duties, AES stock has steadily risen and the company has made its debt payments. Luraschi isn’t alone. As corporate scandals and Sarbanes-Oxley Act requirements increased GCs’ visibility and duties, Fortune 500 companies have been reminded that their chief legal officers are crucial to their businesses. And they’re putting their money where their mouths are: Most of the GCs on the compensation survey are making more in salary and bonus than ever before. What’s more, this year’s data, culled from proxy reports and financial statements, showed a surprising trend. The spike in salaries and bonuses was greatest for GCs at the bottom of the list. Overall, general counsel compensation increased by 9% in 2002, as the average salary and bonus package passed the $1 million mark for only the second time in the survey’s 10-year history (the other was in 2000). Last year saw quite a change from 2001, when GC salaries were effectively frozen and bonuses declined by 12%. In 2002, the average salary grew 6%, from $474,448 to $503,545, and the average bonus surged 13%, from $489,107 to $550,397. That’s the good news. But stock options-the enticement that drew big-firm lawyers in-house during the bubble years-plummeted. Option grants to general counsel declined 30% in two years’ time, from an average of $2 million in 2000 to $1.4 million in 2002. More hard cash, less cold stock: a formula that’s in vogue in board rooms everywhere. And with shareholders in open rebellion, wielding proxy proposals on expensing stock options in record numbers, many compensation experts believe this isn’t a short-term fad. “We are just starting to see a change in the compensation mix,” said Claude Johnston, managing director at New York-based compensation consultant Pearl Meyer & Partners. Big money Ten years ago, when Corporate Counsel, a sister publication to The National Law Journal, first reported on chief legal officer compensation, GC salaries were hardly known outside the legal department. The top 100 lawyers made, on average, $511,909 in combined salary and bonuses and $466,921 in stock options in 1993. Since then, cash compensation has risen 106% and stock options increased 197%. Some GCs benefited handsomely from this spike. General Electric Co.’s Benjamin Heineman Jr. tops the survey for the second time with $1.35 million in salary and $2.58 million in bonus in 2002, almost half a million higher than his compensation in 2001. Chasing Heineman in salary were Cablevision Systems Corp. GC Robert Lemle ($1 million; he recently left the GC job), American Financial Group Inc.’s James Evans ($990,000) and Viacom Inc.’s Michael Fricklas ($960,000). The big bonus winners in 2002, other than Heineman, were Owens Corning’s Maura Abeln Smith ($1.33 million), Coca-Cola Co.’s Deval Patrick ($1.25 million) and Viacom’s Fricklas ($1.2 million). Smith, who is now the GC of International Paper Co., also holds the distinction of being the top-paid woman on the survey this year, out of the 10 women in the Top 100. Bonuses were the prime reason that many of the GCs on the survey’s lower tier saw hefty boosts in compensation. For example, Health Net Inc.’s B. Curtis Westen (86th) received a $308,000 bonus. He didn’t get one the previous year. Less is more It used to be that stock options lured and kept talent in-house. But with the market in the doldrums, companies have moved to the New New Thing: restricted stock. Last year, continuing the aftershocks felt since the stock market went kaboom, stock option grants slumped an average of 16%, from $1.7 million in 2001 to $1.4 million last year. Fewer GCs earned them, too. Eighty-two companies on the list doled out stock options last year, compared to 87 the previous year. In part, companies are reacting to shareholder complaints. Eric Larre of New York human resources consulting firm Towers Perrin said that many Fortune 500 shareholders are now holding proxy votes on how their companies dish out and account for stock options. Still, some companies ran counter to this trend. Leading the pack was Cablevision’s Lemle, who enjoyed a $12.6 million options grant. Anheuser-Busch Cos.’ Stephen Lambright welcomed stock options worth more than $7 million, and also had the biggest cash-out last year ($9 million). But most GCs preferred to sit on their options: Only 32 of 100 cashed out, realizing a total of $48 million, a far cry from the $127 million that the GCs on the list tapped in 1999. With stock options under such intense scrutiny, companies looked for other ways to offer long-term compensation last year. Some opted for restricted stock grants. Thirty-two businesses on the survey handed out restricted stock last year, as opposed to 27 the year before. Advocates say that restricted stock is a better way of aligning executives’ interests with shareholders’. Recipients get the stock’s full value, but restrictions can include long vesting periods, guaranteed terms of service and performance guarantees before the GC can cash out. “Our company decided to switch from stock options to restricted stock, and I think it was an excellent move,” said the former GC (and recently named executive vice president and chief of business operations) of USA Interactive, Julius Genachowski, who received $1.8 million in restricted stock last year, the fifth-largest grant on the survey. “Yeah, I’ll have to wait a bit longer until the stock vests, but it’s good for our company that I won’t automatically be turned into a seller on the market.” Genachowski’s restricted stock came in place of the nearly $5 million in options he received in 2001.

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