What a difference a year makes. This time last year, Charles Kalil was in the number 12 spot on Legal affiliate Corporate Counsel’s annual list of the highest-paid Fortune 500 general counsel. In last year’s report, the GC of The Dow Chemical Co. enjoyed a hefty $1.8 million bonus and earned $2.67 million in total cash compensation. But Kalil needed fewer wheelbarrows to cart his money to the bank in 2011. His earnings took a nosedive to $1.56 million, the direct result of a precipitous $1 million drop in his bonus.

Why? The chemical giant linked its executives’ bonuses to meeting critical annual company goals in 2011. And because Dow’s top brass didn’t meet projected profit and cost-management targets, Kalil’s base performance award was just half of what it could have been.

Kalil’s slide was one of the year’s steeper drops; he landed at number 39 on this year’s list. But Corporate Counsel’s latest GC Compensation Survey shows that he wasn’t alone. It was a year of declines — some in the double digits — for every component of GC pay that Corporate Counsel measures. A number of reasons are to blame — the economy, poor share performance, and, last but decidedly not least, shareholder scrutiny. Say-on-pay resolutions are taking their toll on executive pay, and GCs aren’t immune.

As bad as they look, this year’s results go down better with a spoonful of historical context. The drops come on the heels of double-digit gains across most categories in last year’s survey. And those results in turn followed a year of plunging take-home cash, particularly in the area of bonuses.

So what’s the bottom line? “After three very volatile years, what we’re seeing is a return to normalcy,” said Aaron Boyd, head of research at executive compensation analysts Equilar Inc. in San Francisco.

Let’s examine the components of GC compensation individually. Base pay took the softest blow in this year’s survey, dropping only 1.8 percent, to $611,411. That wasn’t surprising, because salary tends to be the most static element of the executive total pay packet. That’s unlike stock awards and bonuses, which tend to fluctuate dramatically, a trend exacerbated over the last five years. Salary averages, on the other hand, have fluctuated just 2.6 percent per year. From 2009 to 2010, GCs saw their base pay inch up 0.6 percent.

The highest-salaried GC on this year’s list was Philip Morris International Inc.’s David Bernick. After just two years with Philip Morris, the GC abruptly resigned his post in February. But before he left, the tobacco company’s top lawyer was earning an annual salary of $1.6 million. If he sticks to the terms of his noncompete agreement, Bernick stands to collect an additional $1.6 million next February. Not too shabby for not working against the company for a year, right?

After a 28.7 percent surge the previous year, bonuses did an about-face in our most recent survey. Traditional bonuses and nonequity incentive pay (which basically are bonuses tied to meeting certain targets) were down a combined 7.7 percent, to an average of $1,125,458. That’s not to say there weren’t GCs who were handsomely rewarded for a job well done. Thirty-nine lawyers crossed the million-dollar bonus mark — two fewer than last year. The biggest bonus check was made out to Louis Briskman, CBS Corp.’s general counsel. He took home $5.2 million in bonus and nonequity incentive compensation, a package that hoisted him to the top of this year’s survey.

Briskman’s cash compensation totaled $6.5 million — which incidentally was about the same amount earned by last year’s highest-paid GC. But overall, chief legal officers from the nation’s largest companies took a hit in total cash compensation. The average salary-plus-bonus combo weighed in at $1,736,869, down 5.7 percent from the year before.

Cash compensation is only part of a chief legal officer’s pay packet. Stock awards (either options or grants) are a big part of the lure of working in-house and, here again, there’s another contrast to the relatively stable base salary picture. (Corporate Counsel features stock awards in its survey, because they’re such a large part of the total compensation package, but the rankings are based on cash compensation only.)

Now for the punch line: GCs had a collective case of the incredibly shrinking equity award last year. The average stock award fell 10.8 percent, to $1,426,325, in this year’s survey. And of the 70 lawyers who received once-lucrative (but still coveted) option awards, the average award fell a shocking 18.7 percent, to $732,453. To be sure, not everyone saw his or her stock portfolio wind up underwater; Google Inc.’s David Drummond, for example, received an $8.4 million stock grant and an option award of $6.2 million.

Those aren’t small potatoes by any means, but let’s put GC equity awards in perspective. While chief legal officers earn enough to fall somewhere in the by-now-famous 1 percent, their compensation pales in comparison to that of their CEO bosses. Compare the top GC earner, CBS’s Briskman, with the entertainment company’s CEO, Leslie Moonves. Briskman’s stock and option awards came in at a relatively modest $3 million. The chief exec, on the other hand, earned $31 million in salary and bonus last year. Tack on stock and option awards, and Moonves received a lavish pay package of almost $67 million.

Of course, compensation packages for CEOs have always been higher than those of their GC counterparts, and they tend to include deal-sweetening equity awards. Those awards are saving the day for them, even in these hard times. An Equilar survey of the Standard & Poor 500 revealed that CEOs realized modest gains in compensation last year, driven by a 10.7 percent jump in their median stock award.

Some compensation experts weren’t surprised to see GCs’ stock awards move in the opposite direction. Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said that unlike CEO compensation, GC pay is based on what’s out there in the labor pool. “With all the law firms blowing up, there’s a lot of talent floating around,” said Elson. It’s a simple matter of supply and demand, he said. The greater supply of lawyers who are willing to fill general counsel positions may be driving their pay down.

Others discount the influence of a surplus pool of skilled legal talent. Proskauer Rose partner Andrea Rattner advises companies, boards of directors and compensation committees in the area of executive compensation. Rattner acknowledged that the employment market has been tough for lawyers. “There is a glut,” she conceded. But Rattner hasn’t detected a resultant devaluing of the general counsel role. She insisted that companies are always going to be willing to pay to keep good people — GCs included.

Of course, no matter how well a company pays a talented lawyer to stay put, there will always be a pasture that’s greener. Of the top 20 earners on last year’s list, six have since left their positions. At least three of the six have returned to private practice. Advanced Micro Devices Inc.’s Thomas McCoy, Cigna Corp.’s Carol Petren and the Federal Home Loan Mortgage Corp.’s Robert Bostrom took positions with prominent law firms.

That’s the bad news on the pay front. But besides failing to meet targets and an anecdotal surplus pool of labor, why did GC compensation flatline last year? In three words, it’s the economy. Under the circumstances, Jim Wilber, a principal of Newtown Square, Pa.–based Altman Weil Inc., wasn’t surprised to see compensation dip. “The big picture with corporations is that this past year has been one of retrenchment, after some positive movement the year before,” said Wilber in an email. “We have all come to realize that the recovery is coming along slower than we had hoped,” he said, adding that companies remain very wary about hiring. And what’s more, Wilber explained, big pay increases for executives could be seen as out of sync when virtually everyone else in the company is struggling.

On a related note, poor share performance also negatively affected executive pay last year. After a 12-month roller-coaster ride, the stock market closed out 2011 almost exactly where it started. For companies whose stock price struggled, their GC’s pay went down, too. Equilar’s Boyd said, “The move to giving more pay in the form of equity has made executives larger shareholders — with the desired effect of aligning their pay with the overall performance of the company.”

The desire to encourage that alignment led to mandatory shareholder votes on pay. The Securities and Exchange Commission’s rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act’s say-on-pay provision went into effect last January. The rule gives shareholders a thumbs-up or thumbs-down vote on compensation packages at least once every three years.

Shareholders have taken those measures to heart. They’re going through pay packages with a fine-toothed comb, looking for strong links between incentive programs and performance that affected share price. Shareholders also looked for evidence of cutbacks on poor pay practices that had become the norm. Say-on-pay “has created a lot more engagement,” said Boyd. “Companies are certainly taking it seriously.” Although it’s harder to directly link a GC’s performance to financial results than it is to tie the company’s performance to its CEO or CFO, Boyd said lawyers do tend to get lumped together with those executives.

Thirty-eight public companies — or about 2 percent — failed their inaugural round of voting. According to executive compensation consulting firm Semler Brossy, the results in 2012 have strongly resembled those of the previous year. As of June 30, about 50 companies had failed their votes, or less than 3 percent of the 1,700 companies that had held them.

Plus, strong performance one year hasn’t guaranteed a passing vote the next year. “We saw instances in this year’s votes where companies that received 90 percent approval last year failed,” said Boyd.

Although the votes are nonbinding, companies still want to see to it that they pass with a solid majority. And that is having a big impact on what goes into executive compensation packages. Institutional Shareholder Services and other proxy advisory firms have frowned on excessive perks such as corporate jet usage for executives’ friends and family, said Rattner. “We’ve seen some companies make pretty significant reductions,” she said.

Numerous shareholder derivative actions have also followed failed say-on-pay votes. Citing breach of fiduciary duty, plaintiffs have used litigation as yet another platform for expressing dissatisfaction with excessive compensation and other perceived forms of corporate waste.

Rattner anticipates that shareholder scrutiny of executive compensation and heightened sensitivity to problematic practices will continue. The increased transparency of executive compensation will affect general counsel just like any other top executives. But Rattner expects that the effects the new requirements are having on companies will eventually stabilize. Companies are getting used to engaging in deeper risk assessment, she said, and realigning compensation practices after they do.

As companies get more comfortable with say-on-pay, the SEC continues to roll out new regulations governing executive pay. In June, the commission approved a rule directing securities exchanges to adopt listing standards for public company boards of directors and compensation advisers. The rule focuses on maintaining the independence of board and compensation committee members.

Rattner predicted a “flurry of activity” when the SEC issues its final regulations on mandatory clawbacks later this year. The provisions will make it mandatory for public companies to go after incentive-based compensation from executives who have engaged in certain practices. Some business leaders have been critical of the discretion that the clawback rule will take from companies.

The unsettled economic landscape makes big-picture predictions about the future of executive compensation difficult. The crystal ball gets even cloudier when you toss in the uncertainty that accompanies a presidential election year. President Barack Obama and Republican candidate Mitt Romney have both vowed to make economic recovery a top priority for their administrations. Whoever wins, if there’s good news to report here next year, he’ll surely take the credit.

Shannon Green is a reporter for Corporate Counsel, a Legal affiliate based in New York. •