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Poor Ben. He lost over $2 million in just one year. But before anyone passes around the collection plate, consider this: Even with the loss, Benjamin Heineman Jr., General Electric Co.’s legendary general counsel, still sat on almost $32 million worth of exercisable stock options last year (down from $34.5 million in 2000). And despite the dismal economy and GE’s own considerable woes (the company’s stock dropped 16 percent in 2001), Heineman is doing just fine. Last year he pocketed almost $3.5 million in salary and cash bonus, landing him in the No. 1 spot in our survey of Fortune 500 GCs. Of course, Heineman is not your typical GC. But according to Corporate Counsel‘s 2002 General Counsel Compensation Survey, the 100 highest-paid legal heads of America’s big corporations weathered the extraordinary turbulence of 2001 quite well. Though none of these elite GCs were paid like NBA all-stars, most top lawyers were able to hold their income at a steady level. And in some instances, GCs even got bonuses when their CEO did not — a sign that companies want (and need) to keep their legal chiefs happy. Overall, GC compensation was actually a bit higher in 2001 — by 4 percent — than in the halcyon days of 2000: Median salaries hovered around $432,000 in both years, while bonuses actually rose from about $390,000 to $420,000 in 2001. Even the low man on the totem pole — No. 100, James Diggs of PPG Industries Inc. — took home a respectable $590,000 in salary and bonus last year. So what happened to the forecast of hard times? As it turned out, predictions that America’s top legal watchdogs would be on a Spartan diet were greatly exaggerated. One of those naysayers, Claude Johnston, managing director at compensation consultant Pearl Meyer & Partners, admits that he’s surprised by the final tally. The results, he says, “reflect GCs’ heightened role in these critical times.” NOT ENOUGH OPTIONS But not everyone had a glorious 2001. Naturally, some GCs took a sizable hit from the falling stock market — particularly those who were banking on stock options to make them rich. Like Heineman, many saw the value of their stock options shrink — at least on paper — as their companies’ stock prices slumped. On average, share prices of businesses in the Standard & Poor’s 500 index fell 13 percent last year. Still, some of those paper losses for the GCs on our list were startling. Bristol-Myers Squibb Co. GC John McGoldrick, for instance, watched his exercisable stock options go from $26 million to $17 million in one year. But the faltering economy didn’t stop some GCs from making a killing. John Finneran, Jr., of Capital One Financial Corp. cashed out over $15 million, making him the winner in the options sweepstake. Second place goes to Cablevision Systems Corp.’s Robert Lemle (nearly $10 million), followed by USA Education Inc.’s (now SLM Corp.; best known as Sallie Mae) Marianne Keler and Tenet Healthcare Corp.’s Christi Sulzbach (each got $7 million); and fifth place belongs to Cendant Corp.’s James Buckman ($6 million). In general, though, among those who cashed out, the decline in the value of the options was sharp. In 2000, six GCs cashed out over $10 million; in 2001 there was only one GC who passed that threshold. What’s more, the floor for the top 10 cash-outs dropped considerably: The lowest payout for 2001 was $1.8 million (Harley-Davidson Inc. GC Gail Lione), while the year before, the low was $8.6 million (SBC Communications Inc. GC James Ellis) [see " Shaking The Piggy Bank]“. With these fluctuations, will GCs prefer to get paid just in cold cash from now on? Hardly, says New York headhunter Meyer Haberman. “The world has not come to an end,” he explains. “The economy will bounce back � and equity is still a good lure.” But at a time when many companies are struggling, some of the high-option cashouts are raising thorny questions, particularly: Should the head of a corporate legal department — a mere cost center in any business — be making such big bucks? “Options [paid to GCs] are costing many companies,” acknowledges Joel Henning of Chicago’s Hildebrandt International, a legal consulting firm. What’s more, the costs are hidden, Henning adds, because options aren’t listed as a company expense on financial statements. Options amount to “loopholes in accounting,” says Henning, that are “costing shareholders plenty of money.” And now with accounting practices under fire, will corporations stop feeding general counsel generous stock options? Don’t count on it, says Henning. The options genie is now out of the bottle, and there’s no going back to plain salary and bonus. Even midlevel lawyers now expect — and get — options, he says. WHO’S IN, WHO’S OUT Though some of the usual suspects crammed the top 10 GC earners list — like Heineman, Cablevision’s Lemle, Philip Morris Cos. Inc.’s Charles Wall, and Viacom Inc.’s Michael Fricklas — there was also a notable newcomer: The Coca-Cola Co.’s Deval Patrick, who went over to the Atlanta-based beverage company last year from ChevronTexaco Corp. The most conspicuous absence on the top 10? That honor goes to Mark Lehman, GC of The Bear Stearns Cos. Inc., who has dominated the number one or two spot in recent years. This year, though, he disappeared from our radar screen (he’s no longer listed as one of the top five highest-paid executives at Bear Stearns on the company’s proxy) [see " Making The Grade"]. But it’s safe to say that Lehman didn’t make anything close to the $3 million plus compensation he got in 2000, considering that the fifth-highest-paid executive on Bear Stearns’s proxy made only $2.7 million in 2001. Like other investment banks, Bear Stearns saw its revenues slump in 2001. And for the last three years in a row, women failed to break into the magic 10 on our list. But two women are in the top 20 — Owens Corning’s Maura Abeln Smith at number 16 and Tenet Healthcare’s Sulzbach at number 18. Smith and Sulzbach each pulled in over $1.2 million in salary and bonus. In all, nine women made it to the top 100 in 2001, while only seven women made the mark the year before. SALARY/BONUS: A STEADY DIET As a class, GCs are getting more respect — and money; increasingly, their pay matches their company’s chief financial officer’s. Already over 50 percent of the GCs in major American companies are getting paid as much as the CFO, says Henning. According to Securities and Exchange Commission filings, we found that six of the top 10 highest-paid GCs already surpassed their companies’ CFO in pay. But unlike other key executives — especially the CEO — the legal chief isn’t penalized when the company has a bad year. Michael Eisner, The Walt Disney Co.’s CEO, for instance, didn’t get a bonus in 2001, even though GC Louis Meisinger took home a $300,000 bonus. (Eisner and Meisinger both earned $1 million in total compensation in 2001, though Eisner earned substantially more in previous years.) Pegging the CEO’s bonus to the company’s performance conforms to the findings of Mercer Human Resources Consulting’s 2001 survey, which found that the annual CEO bonus dropped a median 13.5 percent in 2001. So why is GC compensation held in such a privileged position even in a down year? One explanation: Companies need their legal gurus more than ever. “The reason you don’t see a precipitous downturn [in GC pay] is that there’s an understanding that GCs are in a strategic position,” explains Henning. There’s been a steady trend for the last 10 years of management putting increasing value on the GC function, says Henning. Truth is, companies in distress will pay serious money to entice the right legal talent with the right cachet. That certainly seems to be the case with Coca-Cola’s new GC Patrick, say legal consultants. Coke, which had been plagued by a racial discrimination suit (it settled for a record $193 million), paid Patrick, a prominent black lawyer, a tidy $1.35 million for his first year on the job. Also, there’s the long shadow of high-profile corporate scandals. “With the recent development in Arthur Andersen, Enron and shareholder scrutiny of company disclosures, companies feel they want to upgrade their legal group,” says Eric Larre of New York consulting firm Towers Perrin. Adds Larre: “There’s a limited number of really good people [for GC positions], and they’ll be able to command top compensation.” Blame it on Enron. But the paradox is that bad times for companies mean good times for their top counsel.

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