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How do we ferret out the 100 best-paid legal officers in corporate America? In a word, methodically. We start by combing through the proxy statements and annual reports of Fortune 500 companies to see if their general counsel are among the top five highest-compensated executives. Publicly traded businesses are required by the Securities and Exchange Commission to report compensation information for these senior execs. This year, just over one-third (179) of the Fortune 500 counted their legal honchos among the top five best-paid employees, up from 167 last year. To winnow that list down, we combined each GC’s salary and bonus to get his total cash compensation for fiscal year 2001. Then we tallied the 100 best-paid GCs. Our rankings of the top 100 are based only on cash compensation. But we also track other forms of GC remuneration — particularly equity. In our master chart, we report the “Value Realized” of options exercised and stock sold last year. Adding that figure to a GC’s “Total Cash” yielded “Total Take-Home” for 2001. In the same chart, we also looked at options that our top-paid GCs can cash out right now if they wish; for that data, look at the “Exercisable Options” column of the same chart. Valuing “Option Grants” can be tricky. We used to do the work ourselves, using the 5 percent appreciation model. That model assumes that stock values grow 5 percent annually. In last year’s GC compensation survey, however, we published the options valuations supplied by GCs’ companies; we did the same for this year’s survey. Almost half of the businesses listed use the Black-Scholes formula, which is gaining in popularity. It is considered to be more accurate because it takes into account stock price volatility and other factors. The rest of the companies on this list used the 5 percent model. MISSING IN ACTION But not every well-paid GC makes it on our list. In some cases, a company’s upper management ranks don’t include the general counsel on the proxy; he isn’t one of the five best-paid employees. That’s the case at Bear Stearns Cos. Inc. The investment bank named a pair of president/co-chief operating officers last year, squeezing GC Mark Lehman (who was No. 2 on our compensation survey last year) off this year’s proxy. We don’t know whether Lehman was the sixth-best-compensated employee in 2001 at his company or the sixtieth; all we know is that Lehman earned less than the $2.7 million in salary and bonus paid to the company’s chief financial officer, who was the fifth-highest-paid employee at Bear Stearns, according to the company’s financial disclosure statement. (Lehman did not return calls seeking comment.) Dropping off your business’s roster of the five best-paid employees is one way to fall off our GC compensation list. Losing your job is another. That’s the fate of No. 1 on last year’s list. Tosco Corp.’s Wilkes McClave III was generously rewarded in 2000 for the hard work that he put into a merger with Phillips Petroleum Co. We hope it was enough to retire on, because he merged his way out of a job. (McClave could not be reached for comment.) However, Phillips’s acquisition of Tosco did help land Phillips’s GC, J. Bryan Whitworth, in the No. 20 slot this year. Corporate financial setbacks also keep GCs off our list. Take Enron Corp., for example. The energy giant did not file a proxy statement; it filed for Chapter 11 protection instead. Other reasons GCs fall off the list? Some get promoted out of the CLO ranks: Jeffery Smisek at Continental Airlines, for example, became the airline’s executive vice-president-corporate in May 2001. Also, a handful of companies file their proxies in late summer beyond our publishing date; that keeps their GCs off the list, too. But for every departure from our list, there’s a new arrival — sometimes in the same company. Conseco Inc.’s John Sabl, No. 6 last year, returned to law firm life, but his replacement, David Herzog, is No. 19, with $1.2 million in compensation. Not bad for a debut.

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