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Want to know the secret of becoming a general counsel who’s able to afford the best in life? Hint: Good lawyering is only part of it. A quick look at the nation’s 100 best- paid general counsel in 2004, as measured in an annual survey of GC compensation by Corporate Counsel, a sister publication of The National Law Journal, shows that top legal officers are raking it in. Most surprising, the cash bonus staged a major comeback; the average bonus payout to GCs last year was $784,539-up a phenomenal 31% from 2003. Overall, these 100 GCs walked away with nearly $257 million in total salary, bonuses and stock option cashouts. The average raise in salary wasn’t too shabby, either, climbing by 9% to $561,738. And of the 49 general counsel who exercised their stock options, the average cashout was $2,493,098, a modest but welcome 3% gain. The conventional wisdom for the raises is that GCs are, in this post-Sarbanes-Oxley era, more valuable to their companies than ever. “The risks of being corporate counsel are going up, and so it seems to me appropriate that the rewards are going up too,” said Joel Henning, senior vice president and GC of Somerset, N.J.-based consulting firm Hildebrandt International Inc. A new wrinkle But there’s a wrinkle: Those fat bonuses weren’t exclusive to corporate chief legal officers. Take Alan Braverman, general counsel of The Walt Disney Co., for example. It’s been a rough ride for the Mouse the past year, and the legal department had to help smooth it out. Braverman spent much of last year fending off shareholder rebellions, including one class action over the lavish ways the company compensated its executives in the past. And at the end of the year, Braverman enjoyed a much larger bonus for his efforts; his bonus climbed to $1 million from a very decent $700,000 in 2003. Extra cash for more hours in the office? Not completely. Last autumn, Disney redesigned its management-incentive program and linked bonuses to the company’s financial performance. Because profits were up, and Disney’s stock beat the S&P 500 index, a broad measure of stock market performance, Braverman was entitled to a hefty boost in his bonus, like every other senior executive. (Disney and Braverman did not respond to requests for comment.) In fact, thanks to a broad economic recovery, profits are up throughout corporate America. According to a study of 350 companies by Mercer Human Resource Consulting in New York, profits rose an average 23% last year. In some cases, like Braverman’s, increased profits automatically trigger incentive programs designed to reward senior executives. In other cases, good financial results put compensation committees, responsible for apportioning bonuses, in a good mood. “Higher bonuses last year reflect better company financial performance last year,” said Ian Singer, assistant vice president and executive compensation consultant at Aon Consulting in New York. “Compensation committees have more of a bonus pool to pay out from.” Bonus bonanzas No matter why they’re awarded, however, it was those bonus bonanzas that made the most waves on the chart this year. Eighteen GCs, led by Lehman Brothers Holdings Inc.’s Thomas Russo ($3.4 million), General Electric Co.’s Benjamin Heineman ($3.1 million), and newcomer Paul Cappuccio of Time Warner Inc. ($2.8 million), took home enough of a bonus to afford, well, pretty much whatever they want. The club of bonus millionaires, in fact, is 10 stronger than the previous year. That’s not the only impact the executive bonus is making in the nation’s biggest law departments. For the past decade, bonuses on average never exceeded salaries by more than 23%. This year, they’re a whopping 40% more than the average salary. And unlike past years, especially during the high-tech bubble, when options were king, nearly three-quarters of the top 100 GCs now count their bonuses as their top form of cash compensation. The cash bonus’s new luster is, in some ways, part of a bigger shakeup in executive compensation. Three years ago, in the dark days of the recession, shareholders put pressure on companies to adopt incentive programs that encourage top-notch performance. Stock options, which had served that function in the past, were virtually useless because of the drastic fall in share prices, especially in the once-hot technology sector. And as shareholders and regulators pressured companies to treat options as an expense, options became even less popular. “Compensation committees started thinking about new ways to structure compensation so as to maximize company share performance,” Singer said. One of the methods that companies adopted was the restricted stock grant. Besides its accounting advantage-it’s treated as an expense-restricted stock can also be allocated on the basis of performance metrics and length of service. Last year, on the survey, the first evidence of these new programs showed up. Option grants were down by 32%, and restricted stock was up-more than half of top earners received restricted stock grants last year. How about rewarding executives quickly? Directors also wanted short-term incentive tools, and in bonuses, they found their device. “More and more companies have started tying their bonuses to specific financial metrics,” said Singer, citing profits, revenue and operating income as examples. The effects of this trend can be seen on who’s zooming up and who’s falling down the 2005 GC compensation survey. With the real estate boom showing few signs of abating, it pays to work in the construction business. The GCs in this sector-United States Steel Corp.’s Dan Sandman, USG Corp.’s Stanley Ferguson, Fluor Corp.’s Lawrence Fisher and Avery Dennison Corp.’s Robert van Schoonenberg-all brought home much larger bonuses in 2004 than they did the previous year. As a result, Sandman (from No. 42 to 19), Ferguson (from 58 to 38), Fisher (from 53 to 32) and van Schoonenberg (from 96 to 66) all shot up the chart. Some GCs lagged Other sectors lagged-and so did their GCs. Last year, energy companies reported disappointing profits and earnings, even in the face of skyrocketing petroleum costs. Thus, Edison International’s Bryant Danner (from 24 to 47), CMS Energy Corp.’s S. Kinnie Smith Jr. (from 27 to 49) and The AES Corp.’s William Luraschi (from 61 to 89) all tumbled down the chart. Not everyone thinks tying bonuses and other aspects to corporate financial performance is fair. Ron Peppe, vice president of law at the Association of Corporate Counsel and former general counsel at Canam Steel Corp., is one of them. “A few years ago, shareholders were very critical that executives were being rewarded when their companies were struggling,” Peppe said. “So bonuses were adjusted to match the rise and fall of certain financial performance metrics.” The problem, said Peppe, is that financial metrics like profits, revenue and operating income poorly measure the performance of chief legal officers. Did Danner, Smith and Luraschi deserve less last year? Not according to Peppe. “Sometimes you do your best work as a general counsel when the going is toughest,” he said.

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