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General counsel at the top of a list of the best-paid general counsel in Texas in 1999 got there by following one of two paths — working at a company involved in a large acquisition or working for a high-tech corporation. The highly paid general counsel brought home multimillion-dollar compensation packages in 1999, with William S. Banowsky Jr. of AMFM Inc. and Britton White Jr. of El Paso Energy Corp. heading the ranking with pay packages valued at more than $10 million each. Another 16 general counsel of large Texas companies were rewarded in 1999 with compensation totaling more than $1 million. The total compensation of general counsel at 31 of Texas’ largest corporations in 1999 was up 30 percent from 1998, averaging $2,379,526, a figure that includes stock options with an average present value of $1,322,150. While total pay packages are up nearly a third from 1998, the increase isn’t nearly as dramatic as last year, when compensation more than doubled when compared to 1997, largely because of rising stock option grants and the value of other incentives. But the numbers are still heady. The $2.4 million average is four times as much as the average of $596,102 paid to general counsel in 1992, the first year Texas Lawyer published its annual report on general counsel compensation. The compensation levels also compare very favorably to the $462,000 in average profits per partner in 1999 at the 25 highest-grossing firms in Texas, as reported in Texas Lawyer‘s annual report on firm finances. While eight-figure pay packages seem almost surreal, few of the general counsel get to take all of their money to the bank. In many cases, the present value of stock options comprises the majority of the general counsel’s total yearly compensation. Those stock options could pay off in a big way if the company’s stock rises and the general counsel stays at the company long enough for the options to vest — or they could be worthless if the company’s stock drops in value. The general counsel compensation reported in Corporate Roster 2000 is gleaned from proxy statements public companies file annually with the Securities and Exchange Commission. Those proxies include information on how the company compensates its top five highest-paid executives, not only base salaries and bonuses, but stock option awards and other incentive pay. The compensation going to Banowsky and White in 1999 are examples of how an acquisition can boost an executive’s incentive pay, if change-of-control provisions allow stock options to vest sooner, for instance, or allow for an accelerated payday on long-term incentive pay plans. Banowsky’s company, AMFM, formerly Chancellor Media Corp., acquired Capstar Broadcasting Corp. of Austin in 1999, while Houston-based El Paso Energy picked up Sonat Inc. of Birmingham Ala. (The Dallas-based AMFM was acquired in 2000 by Clear Channel Communications Inc. of San Antonio, and Banowsky is no longer with the company. El Paso Energy has agreed to acquire The Coastal Corp. of Houston, but that deal is pending.) Mark B. Tresnowski of Allegiance Telecom Inc. took a different lucrative route to the top of the best-paid list. His compensation ranks third because of the present value of a large stock option award he received when he left a partnership in Kirkland & Ellis in Chicago to join the Dallas-based high-tech startup in 1999. The total compensation figures include not only salary and bonus, but long-term compensation payouts and restricted stock awards. Other highly paid general counsel at the top of the Corporate Roster list lead legal departments at two major technology-based companies — William P. Barr of GTE Corp. (now Verizon Communications) and James D. Ellis of SBC Communications Inc. calculated using the Black-Scholes option pricing model, a formula that takes into account the volatility of the stock, the risk-free interest rate and the expected life of the options. While 31 general counsel in Texas are ranked among the top executives at their companies — making their pay a matter of public record — the compensation of 32 other general counsel cannot be determined from proxy statements. Those general counsel are not among the top five highest-paid executives, so their pay packages can only be estimated at some amount less than the lowest-paid executive on their company’s proxy statement. For instance, Exxon Mobil Corp.’s proxy statement reveals little about General Counsel Charles W. Matthews’ pay package in 1999. Information indicates he was paid less than $13,387,578, a figure that includes the $8,878,000 present value of stock options. Other general counsel who presumably pull down large pay packages, but aren’t among the highest-paid executives at their companies, include Thomas C. Siekman of Compaq Computer Corp., Thomas B. Green of Dell Computer Corp., Mark C. Hill of Tandy Corp. and Joseph F. Hubach of Texas Instruments Inc. Brian Satterfield, an executive compensation consultant at William D. Mercer Inc. in Houston, says general counsel are among the top five executives about half of the time. While the chief executive officer, chief operating officer and chief financial officer are typically among the top five executives, the company’s business may dictate whether a lawyer or other operations people will round out the top five, he says. The tenure of the lawyer at the company also is a factor, he says. But the proxies do provide detailed information on the compensation of general counsel who are at the top of their corporations’ executive heap. Banowsky came to AMFM in March 1999 from Capstar Broadcasting, where he had been executive vice president and general counsel prior to the acquisition. His cash compensation for 1999 includes a salary of $316,667 and a million-dollar bonus. But Banowsky, who declines to comment on his compensation, also received stock options with a present value of $9.1 million shortly after he moved to AMFM. Those options wouldn’t vest unless the company’s stock more than doubled in price or there was a change of control. White’s compensation was more varied, but also linked to an acquisition. His pay package included a base salary of $347,502 and a bonus of $956,000, but he also received a long-term incentive plan payout of nearly $5.5 million. A change of control provision in the plan triggered the payout once stockholders approved the Sonat deal, according to the company’s proxy statement. White also received stock options with an estimated value of $2.9 million. Those options, according to the company’s proxy, are intended as a three-year grant designed as an incentive for White’s hard work on integrating the Sonat acquisition. White says he had already earned the $5.5 million performance award, but because of the Sonat deal, he received the money in 1999, instead of in January 2001. And he says his responsibilities have grown exponentially with the Sonat acquisition and the pending Coastal acquisition. “The day-to-day legal work doesn’t stop, or reduce any,” he notes. It’s a different story for Tresnowski, the third-ranked general counsel on the list. Tresnowski says the stock option award that he received in February 1999 (valued at nearly $7.7 million) was a form of a sign-on bonus to persuade him to join Allegiance Telecom, a startup. “The chairman was asking me to leave full partnership in Kirkland & Ellis in Chicago. In terms of salary, current compensation, it was a significant reduction, about 25 percent of what I was making,” says Tresnowski, whose salary and bonus from Allegiance Telecom totaled $264,616 in 1999. He also negotiated the right to work out of the company’s office outside Chicago. While at Kirkland & Ellis, Tresnowski, a corporate securities lawyer, represented the original investors in the company and helped form it as a private company in 1997 and take it public in 1998. The big five on the list of best-paid general counsel in Texas are rounded out by GTE Corp.’s Barr, a former U.S. attorney general, and SBC Communications’ Ellis. Both Barr and Ellis were among the top five on Corporate Roster 1999, and Ellis topped the list in the 1999 and 1998 versions of Corporate Roster, which report compensation from 1998 and 1997 respectively. Barr’s 1999 total compensation is up 148 percent from his pay package in 1998. Much of the increase can be attributed to a nearly $2 million incentive plan payout after shareholders in the Irving-based GTE approved a merger with Bell Atlantic Corp., forming Verizon Communications. Ellis’ pay package dipped about 27 percent in 1999. He received considerable incentive pay in 1998, plus $2.8 million in restricted shares of a newly public Israeli-based software company in which SBC Communications had a significant ownership interest. But Ellis still received a total of $4,267,667 in 1999, including stock options valued at $1.2 million under SBC’s special performance and retention awards. Retention is one of the reasons general counsel and other executives receive large grants of stock options and qualify for incentive pay plans that require them to meet performance goals over several years. “Options are used to keep people whole, to keep value on the table,” says Satterfield, the executive compensation consultant. Satterfield says grants of stock options and restricted stock are used not only to align the financial interests of executives with those of shareholders, but to prevent executives from jumping ship. They are often given to executives immediately after an acquisition, he says, to ensure they will stay around to help meld the cultures of the company and make sure the deal works. UPS AND DOWNS The rankings of general counsel compensation include the chief lawyers from the 72 Texas-based companies on the Forbes 500 list. Of the 31 general counsel on the best-paid list, 14 racked up higher total compensation than in 1998 while 10 had smaller pay packages. The 1998 compensation of the other seven could not be determined from proxy statements. Several of the 72 Texas-based companies do not have general counsel, including Cullen Frost Bankers of San Antonio, Texas Utilities Co. and Hispanic Broadcasting Corp., both of Dallas, Arlington’s D.R. Horton Inc., Laredo’s International Bankshares, and Houston companies Nabors Industries Inc. and Noble Drilling Corp. At Valero Energy Corp., of San Antonio, Gregory King was promoted to senior vice president and chief operating officer. The company does not have a general counsel, although Martin Loeber is vice president of legal services. American National Insurance Co. of Galveston doesn’t have a general counsel, but Greer, Herz & Adams is its legal counsel, and Irwin M. Herz Jr. is a member of the company’s board of directors. The company paid the firm $2,661,596 in fees in 1999 (and provided office space and telephones), according to the proxy statement. Three general counsel moved from Texas Lawyer‘s second-tier list in 1998 to the best-paid list in 1999 — Banowsky, Jeffrey R. Moreland of Burlington Northern Santa Fe Corp. of Fort Worth, and James M. Shelger of Houston’s Service Corporation International. Several others on the best-paid list did not appear last year because their companies were not among the Forbes 500, including Tresnowski, Joseph Listengart of Kinder Morgan Inc. of Houston, Wayne N. Hillin of R&B Falcon Corp. of Houston, and Michael J. McCarthy of A.H. Belo Corp. of Dallas. Others, all from Houston, are Patrick S. Bullard of Southdown Inc., James W. Shaddix of Pennzoil-Quaker State Co., Barry Hunsaker Jr. of EOG Resources Inc., Zurab Kobiashvili of Apache Corp., Curtis W. Huff of Weatherford International Inc., and Michael R. Patterson of Plains Resources Inc. White posted the largest increase in compensation from 1998 to 1999, a 579 percent increase. Other general counsel with pay packages that more than doubled in value in 1999 are Barr, Kenneth Randolph of Houston’s Dynegy Inc., and Jonathan K. Heffron of Bank United Corp. of Houston. Weatherford International’s Huff saw his total compensation take a big dive in 1999, but that’s because he received a large sign-on bonus — $2.6 million in restricted stock — when he joined the company in June 1998. He also did not receive a grant of stock options in 1999. Lawrence O’Donnell III’s total compensation for 1999 at Baker Hughes Inc. also dropped dramatically, primarily because he did not receive a grant of stock options. O’Donnell left Baker Hughes in February 2000 to become general counsel of another Houston-based corporation, Waste Management Inc.

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