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Be careful what you wish for. That’s the lesson many general counsel are learning this year. For the past 20 years or so, GCs at Fortune 500 companies have pushed to be treated — and compensated — like members of their employers’ most senior executive ranks. Generous salaries and lavish bonuses weren’t enough. Stock option grants, which gave them a stake in their company’s performance, became a hefty part of GC compensation. That strategy worked in a bull market. But now it may not have been so smart after all. Corporate Counsel‘s 2001 GC Compensation Survey — a close look at pay packages for 100 of the highest-paid general counsel in the nation last year — reveals the calm just before the storm. GC compensation held steady last year, right before the U.S. economy slammed into rough seas. In 2000 the median salary for this lucky 100 rose about 4 percent, from $416,877 to $432,336. But the median cash bonus dropped by nearly 3 percent, to $389,900. But any dip in bonuses was canceled out by stock option grants (the right to buy, after vesting, a given number of shares at the fair market price on the date issued). Their median value jumped a staggering 80 percent in 2000, to $1,793,542. This largesse was likely a holdover from a better time. In early 2000, when most of these grants were made, the bull market was still on the rise. (These numbers were calculated using data from company proxy statements.) While the value of stock options depends on the vicissitudes of the market, you can always bank on cash. GCs’ median cash compensation (salary plus bonus) grew less than 1 percent from 1999, but the top attorneys still took home a nice bundle last year. Tosco Corporation’s Wilkes McClave III, number one on our list, earned a princely $4,694,114. Number 100, F. Dean Copeland of UnumProvident Corporation, earned a more modest, but still healthy, $655,000. The top 100 have more than just their affluence in common. Ninety-one of them are male. And all but two are white, according to Veta Richardson, executive director of the Minority Corporate Counsel Association. Wayne Budd, number 25, and Stacey Mobley, number 51, are African-American. The top 100 do range in age from 39 years old (Julius Genachowski of USA Networks) to 84 (Stuart Krinsly at Sequa Corporation). But most are solidly into their middle years. (The median age is 56.) The top 100 had a prosperous 2000. But there is no guarantee, given the weak U.S. economy, faltering company profits, and battered stock market, that the group’s compensation won’t take a substantial hit in 2001. Salaries are expected to remain flat. But “at-risk” pay — options and bonuses — is particularly vulnerable in a fault-ridden economy. Claude Johnston, managing director at compensation consultant Pearl Meyers & Partners, predicts that 2001 “will be a real eye-opener.” OPTIONS Option grants — with a median value of $1.8 million — remained the biggest component in the top 100′s compensation last year. Some GCs, particularly those whose companies reported strong profit growth in 2000, blew past the median. SPX Corporation granted GC Christopher Kearney $18.1 million in options last year. The Muskegon, Mich., industrial products maker could afford it; the company posted an 87 percent increase in net income over 1999 figures. Applera Corporation’s William Sawch and NTL’s Richard Lubasch also received option grants worth more than $13 million last year. Things may not look so rosy when we compile next year’s survey. Profits at companies in the S&P 500 stock index plunged 17 percent in the first half of 2001 over last year’s figures, according to Thomson Financial/First Call. The Dow Jones Industrial Average fell 4 percent during the first eight months of 2001, and the tech-heavy Nasdaq fell 25 percent during the same period. With stock values down, many GCs suddenly find themselves holding options that are “underwater,” or trading at less than their strike price. Top legal officers may want to rethink tying up so much of their compensation in one vulnerable area. A re-evaluation of stock option grants is long overdue, says Paula Todd, a principal with the consulting firm Towers Perrin. “Stock options in the ’90s could do no wrong,” she says. “They could deliver a lot of pay without accounting consequences and with a fair amount of tax deferral.” A more stable mix of cash and equity programs is needed for future pay packages. Developing a solid compensation package is akin to “planning a balanced meal,” Todd says. “You can go on vacation and eat a lot of junk, but eventually you have to come back to reality.” BONUSES For most of the top GCs, bonuses were down slightly last year. However, six GCs took home seven-figure bonuses in 2000. Tosco’s McClave topped the charts with a $4.3 million bonus. He trumped Bear Stearns Companies Inc.’s Mark Lehman and General Electric Company’s Benjamin Heineman Jr., who earned bonuses of $3 million and $1.9 million, respectively. Unlike option grants, if bonuses sink, almost all the GCs on our list are likely to feel the pinch. Ninety-nine out of the 100 GCs on our list took home a bonus last year (Thomas Cody, of Federated Department Stores Inc. didn’t make the cut). And these bonuses count more now than they ever did. In 1993, 53 percent of the GCs on our top 100 list pocketed bonuses that were equal to or more than half of their salaries. This year, 94 percent did. GCs in some industries are particularly vulnerable. Top legal officers in the diversified financial and insurance industries got a higher percentage of their total cash compensation from bonuses last year. If their companies stumble, there will be less to cushion the fall at the end of 2001. All GCs should brace themselves for smaller bonuses next year, say industry experts. As Fred Krebs, director of the American Corporate Counsel Association, puts it: “There’s not going to be a big disconnect between how our members are doing and the economy.” The bottom line? After years of pushing for more at-risk pay, GCs soon may have to contend with the downside of that equation.

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