Deval L. Patrick must have given up a lot to become general counsel at The Coca-Cola Co. In order to compensate him for the hit he took in leaving his prior post as GC at Texaco, Coke gave him stock options valued at $19.4 million. And a decade’s credit in its retirement plan. And a $1 million “make whole” payment — he got half last year, and the other half this year. Between salary of $359,583, bonuses of $495,000 on top of the make-whole payment and about $9 million in restricted stock, Patrick’s total compensation for his first year on the job at Coke was $10.35 million. That pay package not only has the potential to make the top-paid King & Spalding partner feel like an underachiever, it also makes Patrick the highest-paid lawyer in Fulton County Daily Report‘s ranking of general counsel compensation.

In second place is Frank L. Fernandez, The Home Depot Inc.’s general counsel, who in his first year on the job earned $6.15 million. John C. Walters, general counsel of John H. Harland Co., is a distant third with pay of $1.45 million, despite the fact that he’s the only one of the top three with a track record with his company.

The Daily Report examined the pay of 33 GCs at public companies based in Georgia. Those GCs emerged because they are among their companies’ five most highly paid executives, which means their compensation must be listed in public documents filed with the Securities and Exchange Commission. Conceivably, GCs who aren’t among the top five at their companies, or who work for private concerns, make as much or more than the GCs listed here.


The list includes 29 men and four women. The highest-paid woman in the ranking is Cathy Sigalas, general counsel at World Airways, whose total compensation was $603,790. Median total compensation for the group was $433,411; average salary was $256,343 and average bonus was $167,874. Though these pay packages show that GCs are worth a lot to their corporations, there’s little to show how compensation committees decide their value. Corporate spokespeople are reluctant to offer much insight beyond what’s tucked away in their proxies. Proxies, once pay information has been teased out of their Gordian knot of charts and footnotes, offer only the most basic information about how executives are valued.

For example, Home Depot’s 2002 proxy says, in part, “We have a pay for performance philosophy.” Now that’s illuminating. So how, exactly, are GCs valued? Sure, their pay is based partly on performance. But compensation and placement consultants say it also turns on what a GC gave up to take the job — remember Coke’s Patrick — and on what the competition is paying.


One prime factor used in setting a GC’s compensation is keeping up with the Joneses.

Eric C. Larr�, executive compensation practice leader for the Southeast region for Towers Perrin, advises corporations to look at what peers in their industry or companies with similar revenue are paying their GCs.

“When you’re looking at hiring somebody, you’re going to generally look at the market data. … You pay the position, not the individual,” Larr� said.

The rationale: In general, GCs who aren’t trying to move into some highly specialized or regulated industry, such as biotechnology, can switch industries with ease. Patrick is an example of that, having moved from oil and gas company Texaco to beverage giant Coke.

Larr� said that although an individual’s prior experience may support an adjustment to the market data, what competitors are paying remains the bedrock of compensation setting.

“The war for talent is alive and well,” said Deborah A. Sawyer, managing director of professional and information technology services for Korn Ferry International. “You have to realize that corporations spend an incredible amount of money each year with compensation consultants to look at ‘How are we doing vis-a-vis our peer companies?’”

Sawyer, whose company represents corporations in executive talent searches, said that in the last year, she’s seen the pay of top managers below the CEO start to standardize. In other words, the GC’s base salary might be almost the same as the CFO’s. Because their pay is public information, she said, “It eliminates some jealousy and curiosity.”

The big pay differential, then, comes from bonuses that are based on executives’ function and performance, she said.


As the GC’s function has changed in recent years, so has the pay. A few decades ago, conventional wisdom said that lawyers who wouldn’t or couldn’t stand the rigors of partnership took less-demanding jobs in-house, giving complex work to outside counsel.

Over the last 10 years, according to Sawyer, the GC has become the CEO’s right hand “and not just a necessary evil.”

She said that in Korn Ferry’s general counsel searches, the company is finding that GCs are increasingly viewed as strategic business partners to the CEO and senior line executives, as well as senior advisers on the board. As such, a GC is expected to marry a level of business savvy and skill to technical legal competence.

Sawyer said highly paid GCs are worth their pay if they are functioning in that business advisory role. “If they’re helping to mitigate risk, if they’re looking at everything from the SEC aspect to mergers and acquisitions and doing it from a cost management standpoint, then they are earning their keep,” she said.


Walters, at John H. Harland Co., is the only GC in this ranking’s top three most-highly compensated who has a track record at his current employer. Walters joined Harland in 1996, and has been among the company’s five highest-paid individuals since day one.

His background may have helped him achieve that status. Before joining Harland, he served as executive vice president and deputy GC at First Financial Management Corp., where he worked with Robert J. Amman. Amman later became CEO of Harland and hired Walters for his new company. Amman no longer is with Harland.

Working with Amman at First Financial subsidiary Western Union Corp., Walters helped change Western Union from a money-losing telecommunications business to a profitable financial services company. Harland, known for its check and forms printing business, in recent years has transformed itself into a technology company that provides software designed for financial institutions. Walters has been among the company’s leaders throughout that transition.

His base salary his first year with Harland was $215,417. He also received stock options for 100,000 shares, valued at the time at $731,250. Last year, his base salary had climbed about 24 percent from his first-year’s pay (that’s 4 percent per year) to $266,500, and he received a $123,123 bonus. His total compensation, which includes stock ownership, was close to $1.5 million.

What’s happened at Harland in the intervening five years to justify an additional half-million? Since Walters has been at Harland, the company’s share prices have zigzagged, going from $33 a share at the end of 1996 to a low of just under $13 in 2000 to $25.10 last week. But Harland was a top performer in the Atlanta Journal-Constitution‘s 2002 ranking of Georgia’s most profitable companies, taking eighth place on the list of 100, thanks to its 36 percent profit growth in 2001.


But pay doesn’t always rise with company triumphs and fall with company troubles.

Patrick G. Jones, general counsel at PTEK Holdings Inc., ranked fourth in compensation with a 2001 pay package of $1.35 million. Salary accounted for $393,750 of that. His bonus accounted for another $515,227, and restricted stock worth $430,853 made up most of the rest.

Jones has been with PTEK (previously known as Premiere Technologies) since 1995, the year before it went public. In his first full year with the company, 1996, his base pay was $150,000 and he exercised stock options worth $528,338.

His pre-PTEK experience included partnerships at Nelson Mullins Riley & Scarborough and Long Aldridge & Norman (now McKenna, Long & Aldridge).

According to PTEK’s proxy, the company’s compensation committee sets executive pay according to a number of factors, including the level and scope of responsibilities, pay levels of executives at comparable companies, and PTEK’s recent financial results as compared to prior years and its business plan.

The company hasn’t had stellar financial results. PTEK lost $242 million last year — though it had a $5 million profit from continuing operations in the first half of 2002. Its stock did rebound somewhat in 2001 — from $1.38 a share to $3.40 a share — but it traded at a high of about $47 in 1996.

Though Jones’ compensation package is large, it doesn’t contain some of the perks given to others at his company. PTEK CEO Boland Jones’ (no relation to Patrick Jones) 2001 compensation included $6 million in loan forgiveness, for example. Jeffrey A. Allred, a lawyer who is the company’s president, chief operating officer and director, had $3 million in loan forgiveness.

As a possible factor supporting Patrick Jones’ pay, Korn Ferry’s Sawyer pointed out that PTEK “was on a strong acquisition binge, and they did what they said they were going to do.”

R. David Simmons, Southeast executive compensation practice leader at Watson Wyatt & Co., said, speaking generally and not about PTEK in particular, when a company’s performance is poor but it’s GC’s pay is rich, several things could be happening.

“The conclusion of the board might be that the work of what they presume to be a vital individual in a period of extreme defensive activity, and the desire to hold onto that individual, means they need to take care of that person,” he said. “Or the person might have lost so much value in options that they don’t want to do an option repricing, so they make a cash payment through the bonus to recognize [the person's] activities and efforts.”

On the other hand, Simmons added that when pay seems to outstrip performance, “Healthy skepticism is always wise.”


The two highest-paid GCs in this ranking had barely a year to build performance records with their employing companies before the most recent proxies came out. But both Coke’s Patrick and Home Depot’s Fernandez — each of whom joined their respective employers in April 2001 — had impressive, guaranteed pay packages before they even started working.

Pay packages like those, Korn Ferry’s Sawyer said, often are based on what GCs had to give up to join their current employers.

For Patrick, the sacrifices must have been substantial, as the sum of the “make whole” pay and stock options the company offered him is close to $20 million. Most of that is to reimburse him for stock options he left behind at Texaco.

Patrick wasn’t among Texaco’s five highest-paid executives, so his compensation from his time there isn’t public information.


Larr�, the compensation consultant from Towers Perrin, said there’s no trend-line to show how close companies get to making GCs whole. “It’s a question of how good a negotiator you are, and how bad the company wants you,” he said.

Coke had some reasons to want Patrick. He’d been an assistant attorney general in the U.S. Department of Justice’s civil rights division, and had worked for the NAACP Legal Defense and Education Fund before joining Texaco.

While at Texaco, he headed the company’s Equality and Fairness Task Force, which oversaw the settlement of a $176.5 million racial discrimination suit against Texaco — a suit that Coke later used as a model to settle its own record $192.5 million class action racial discrimination suit brought by black employees.

Patrick’s predecessor in the GC’s slot, Joseph R. Gladden Jr., handled those negotiations, but shortly after that settlement, Patrick replaced him as Coke’s first black general counsel. The year he joined Coke he was one of only 11 African-American general counsel at a Fortune 500 company — which meant Coke got a certain amount of positive press in the wake of its racial discrimination suit.

Coke’s stock, on the other hand, was in decline. It opened 2001 at $60.32 a share, and closed the year down more than $13, at $47.15.

Brandon Rees, a research analyst in the office of investment at the AFL-CIO in Washington, isn’t impressed by how Patrick’s pay relates — or doesn’t — to Coke’s performance last year.

“It has to be viewed in the context of Coke’s executive compensation practices in the past. CEO [Douglas] Daft, in our view, has been overcompensated relative to the company’s performance,” he said. “There is an executive compensation problem when you’ve got declining share prices and company layoffs as well as the enormous liabilities such as the [past] racial discrimination allegations at Coca-Cola.”

Simmons of Watson Wyatt, however, had a different view. Speaking generally and not about Coke in particular, he pointed out that the more difficulties a company is having, the more motivated it may be to pay for top talent to help solve its problems.


Home Depot’s GC brought impressive credentials to the job, and it probably didn’t hurt that the company’s new CEO had worked with him and knew his abilities.

As No. 2 on the Daily Report‘s list of general counsel, Home Depot’s Fernandez had a base salary of $444,230 — pro-rated from a full-year pay of $525,000. His employment agreement also guarantees a bonus that can’t drop below 65 percent of base — $341,250 — or exceed 100 percent of base. His bonus for 2001 was $775,000 — $525,000 (100 percent of his base pay) plus a $250,000 signing bonus.

Other perks included $75,384 for moving expenses, $43,401 for related tax expenses and a relocation loan of $500,000, forgivable at 20 percent a year and due in four years. The grand total: $6.15 million. What makes him worth that much his first year on the job?

Korn Ferry’s Sawyer said it could be his prior experience at General Electric. Before joining Home Depot, Fernandez was managing partner of Fernandez, Burstein, Tuczinski & Collura in Albany, N.Y. A certified public accountant as well as a lawyer with an LLM in taxation from New York University, he reached Home Depot via his connection with Robert L. Nardelli, who became Home Depot’s president and CEO in December 2000. Fernandez had worked as Nardelli’s personal lawyer, and also as outside counsel for General Electric Power Systems, which Nardelli headed before he joined Home Depot.

GE has a renowned 950-attorney law department, and as the department’s size implies, the company keeps much of its legal work in-house. Fernandez has said he handled some mergers and acquisitions work for GE.

“He’s in a high-growth company,” Sawyer said. “The guys that came up in the [former CEO] Jack Welch model at GE do have a high market value out there. In a corporate counsel role at GE, even if you’re outside counsel, you have a high role in mergers and acquisitions.”

Home Depot and Coke are major companies, so Patrick and Fernandez brought excellent work experience to their new jobs. So what accounts for the $4 million differential between their total compensation?

Watson Wyatt’s Simmons, again speaking generally, said that in such a situation, it’s more instructive to look just at base compensation and bonuses. In that context, Patrick’s cash compensation was $1.35 million; Fernandez’s was $1.21 million — only about $135,000 apart.

Also, long-term incentives — the stock options that often make up the bulk of a total compensation calculation — are, as Simmons puts it, “purely an opportunity.”


Those stock option opportunities, of course, are meant to compensate GCs for the value they bring to the company. Recent changes and proposed changes in corporate governance laws including the Sarbanes-Oxley Act and the New York Stock Exchange and Nasdaq regulations, however, are bound to have an impact on GCs’ value.

Rees, the analyst for the AFL-CIO, said he’s hoping executives take a pay cut. “We’re seeing higher shareholder votes against the use of stock option plans,” he said. “I think the next frontier in terms of where shareholders need to be concerned is involving retirement pay and severance pay to executives, because that pay typically isn’t disclosed clearly. The terms are often buried in the executive’s employment agreement … when the CEO resigns, often not giving shareholders any input into that process.”

Jack Welch’s lavish exit package from GE, which came to light not in the company’s proxy but when Welch’s wife filed for divorce, is a prime example of that, Rees noted.

But Towers Perrin’s Larr� has a different view. “In today’s environment, while it’s clear that the legal function isn’t a profit-making function, I would say that the GC — if you’re an acquisitive organization — is probably the second-most important person in the room next to the CEO,” he said. “When you look at putting deals together, it’s not just kind of keeping you out of litigation. It’s making sure you get the best value in any particular deal.”

He predicts that in the next year, corporate governance rules that make lawyers ever more necessary to corporations, their boards and their CEOs, will push pay even higher.

“When you look at the amount of scrutiny placed on companies’ compliance functions, one could anticipate that either companies will try to upgrade their legal function or make sure that they hang onto the good people they’ve got,” he said.

Those regulations — though designed in part to curb executive pay — are unlikely to cause a thinning of GCs’ wallets, according to Larr�, who said that companies will get more creative in how they offer variable compensation such as bonuses and stock options. “The ability to be creative,” he said, “is probably endless.”

Related chart:
2001 General Counsel Compensation for Georgia Public Companies

Rachel Tobin Ramos researched the executive compensation data in this story.