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Is the gravy train about to end for general counsel like Deval Patrick and Lawrence Fisher? Both have been big beneficiaries of the types of executive compensation now under attack from angry investors and posturing legislators. Patrick, GC at The Coca-Cola Co., cut a pay deal last year that included a stock option grant valued at an eye-popping $19.4 million. Fisher, meanwhile, took out a $1.3 million personal loan in 2001 from Fluor Corp., where he serves as senior vice president of law. But now that Congress and corporations are devising ways to shore up investor confidence, options and loans could become relics of the go-go ’90s. A small but key piece of the new corporate governance law, the Sarbanes-Oxley Act, bars companies from giving personal loans to their executives. (Some exceptions are allowed for certain types of home loans, company-issued credit cards, and other items.) Meanwhile, scores of businesses, starting with Coca-Cola, announced this summer that they would voluntarily list stock option grants as expenses in their financial statements. And at press time, the Federal Accounting Standards Board appeared ready to require this change for all publicly traded companies. The widely held belief is that once options are treated as expenses and start to dampen earnings, companies won’t be as generous in doling them out. THE PREVALENCE OF OPTIONS While only a minority of general counsel receive loans like Fluor’s Fisher, options are far more common. Corporate Counsel‘s 2002 GC Compensation Survey of the 100 highest-paid chief legal officers in the country found that 87 had snagged option grants last year. Forty-two GCs in the survey, a smaller but still significant percentage, cashed out company stock last year. The average gain for these in-housers was $2 million — twice as much as their average cash pay of $1 million. So if businesses really decide to cut back on options, many general counsel would feel the pain. But that probably won’t happen, according to some compensation consultants. These experts say that corporations will continue to pay top dollar for top talent. “We will see a reduction in the growth of executive compensation, but you’re not going to contain it,” explains Blair Jones, a senior vice president at Sibson Consulting. “You still have a market-based system out there that you [as a company] still have to respond to.” That response could take several forms, compensation experts say. First and most obviously, companies could boost salaries and bonuses, the cash portion of their executives’ pay. Most businesses will also continue to use options, consultants predict, but with some alterations. Holding requirements and performance goals are likely to become more common, for example. Options could not be bought, or shares could not be sold, until a certain amount of time had passed, or until the company met specific growth targets. Indeed, some companies are already moving in this direction. Under a new policy at General Electric Co., GC Benjamin Heineman Jr., will have to hold on to his company stock for at least a year before he can sell it. And in late August, Cendant Corp. — another convert to expensing options — announced that it would increase its use of restricted stock grants in the future. (Cendant GC James Buckman may eventually feel the sting, but not anytime soon: He exercised more than $6 million worth of options in 2001, got about $4 million more, and had a stockpile of $16 million in exercisable options at year’s end.) Even loans aren’t completely off the compensation table. The Sarbanes-Oxley Act clearly bans the type of outlandish borrowing that executives used in the past to load up on company stock. But the law’s three-paragraph directive on the topic contains some vaguely worded exceptions. Consider the $19 million in interest-free “relocation” loans that Mark Belnick allegedly received while GC at Tyco International Ltd. Corporate securities lawyers disagree about whether such loans are still legal under Sarbanes-Oxley. The new law is unclear on other issues as well. For example, is a corporation prohibited from contributing to an exec’s life insurance? Or from giving short-term loans to cover options exercised? Attorneys say that they expect the SEC will provide the answers at some point, though Congress didn’t require the agency to do so. AS GOES THE CEO, SO GOES THE GC? But not everyone thinks that the status quo will continue for GC pay. The words of warning come from Graef “Bud” Crystal, a Las Vegas-based compensation expert and longtime critic of executive pay. He believes that companies will cut compensation for their top officers by as much as 25 percent to 30 percent during the next few years. Much of the decline will occur among chief executives, but general counsel will suffer too, because CEO pay is the largest predictor of GC pay, Crystal says. That, in turn, could affect recruiting. During the stock market craze, senior law firm partners who otherwise wouldn’t have seriously considered going in-house were jumping at the chance to make 20 times their draws, thanks to options. Absent that inducement, businesses will have trouble attracting top talent, suggests Crystal. And that could be a problem for corporations which, in these days of scandal and scrutiny, need savvy legal counsel more than ever.

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