General Counsel find it hard to get relevant data to make the business case that will change the classification of their lawyers, or to gain control over a larger pool of variable pay for department members. It seems that survey data "averages" information-ranges, medians, etc.-and is not easily leverageable. Apart from statistical ambiguities, there are internal pressures, and the most prevalent of these is the shortage of inside counsel. There is always enough work to go around and not enough time to do it in. The pressure mounts when a member of the department goes on leave or resigns. It comes as no surprise then that the recruitment, retention and advancement of inside counsel ranks as one of the top three challenges faced by General Counsel.
Preparing for a Survey
It is important to clear the air about surveying on compensation-related issues. There is sometimes a sense that inside counsel are poorly paid-either compared to others in the organization, or to one's competitors. Lawyers with less than ten years of call may continue to make comparisons with associate compensation levels in their region-and forget the fact that less than three out of ten first-year associates make partner in their original firm. While it is the responsibility of General Counsel to ensure that compensation is fair and competitive, dispelling any sense of entitlement in department members is a necessary prerequisite to surveying.
The second hurdle in making compensation adjustments is the mindset that the company's system of classification and performance pay should not apply to members of the law department. Yet, corporate Human Resources departments wrestle with identical "exceptions" or aberrations to the classification/pay system for other professionals and executive positions (IT, engineers, geologists, regulatory specialists, etc.). Compensation policy is a balancing act between individual merit, market comparisons, and relative levels with other areas of the company. General Counsel, like all department heads, are only concerned with the merit and market aspects of compensation issues, while the Human Resources department must focus on market issues and the vexing issue of internal equity within the company.
General Counsel thinking about launching a customized compensation survey must be selective about their goals in doing so. Is it to make a business case for a re-classification and a higher base pay? Is it to secure a larger pool of variable pay for the members of the department, or even to ease the anxieties in the department? Selecting the right reference market is critical. Most Human Resources surveys use industry comparators, such as oil and gas companies, insurers, banks or, more broadly, manufacturing. Customized surveys for law departments should identify other law departments from which one would normally recruit lawyers, or to which one can lose lawyers. Properly selected, eight to ten comparators should be enough.
Survey Issues
Customized surveys are designed to yield more than data. It is not enough to understand the basic architecture of other compensation systems in the comparator groups. The actual compensation paid to individual counsel, with names not revealed, provides insight into the real take-home pay. There are enough instances where General Counsel manage to pay one-time bonuses, outside the boundaries of the corporate performance pay plan.
Surveys must segregate base pay from variable pay, and then sub-divide the variable pay elements between those based on the company's performance and those based on individual merit. The more progressive law departments have taken it a step further and set aside a portion of the variable pay for team or law department performance.
Finally, General Counsel are always interested in how performance is measured and evaluated. Counsel who can demonstrate that their contributions make a measurable difference to the results obtained by the company or by its business units will generally obtain greater total compensation than their comparators. Inside counsel handling litigation or managing labour and employment practices will not fare as well as those aligned with the transactional parts of the organization. Still, certain expertise-based counsel, such as tax, IP, or regulatory affairs, can be well positioned for better than normal pay packages. Last year's surveys revealed that larger law departments with certain expertise use compensation practices that differentiate around lines of expertise and specialization-in effect, better reflecting the market value of the law department's intellectual capital.
The Follow-Through Survey
Survey findings are an important way to get one's bearings, but they provide little guidance to individual counsel on how to move ahead within the system. Here are five options available to inside counsel:
1. Counsel of all vintages take on special projects with company-wide implications (e.g., Y2K, overhauling the company pension system, etc.). The better projects for personal advancement are those which develop leadership skills and call for multi-disciplinary teams.
2. By the fifth year of call, all inside counsel are advised to develop a specialty or expertise. This is not easy to achieve in the one- or two-person law department, but can be managed with a careful use of outside counsel for the more routine work and co-counselling arrangements for complex work. A back-up legal/ business specialty is a good idea.
3. For those counsel wanting no limits to compensation, there are only a few choices remaining. The first is to target management responsibility by the tenth year of call at the latest, perhaps as an Associate General Counsel or by moving into one of the business units or line departments. The second, applicable to General Counsel, is to broaden the portfolio beyond only legal. Some General Counsel have responsibilities for regulatory affairs, Human Resources and the very strategic Business Development. This approach is essential as all organizations regularly flatten the hierarchy and the size of the executive team.
4. Find ways to identify serious economies in legal costs for the company, and then secure approval to re-direct a portion of the economies to the variable pay pool for the law department. The opportunity to re-examine workflows, practice management, infrastructure costs and the use of outside counsel is available to all companies.
5. Ensure that all counsel have a documented career plan with clear advancement goals-preferably within the company. Too many professionals drift and the department is left with a less-than-optimal talent mix that no adjustment to compensation can fix.
Richard G. Stock, M.A., FCIS, C.Adm, CMC, is a partner with Catalyst Consulting, a national consulting firm serving law firms, corporate law departments and users of legal services. Catalyst Consulting has been designated the Preferred Supplier for Legal Services Consulting by both the CBA and the CCCA. Richard can be reached at (416) 367-4447 or through the Web site http://www.catalystlegal.com.