- law departments are traditionally less expensive;
- the lawyers have a better knowledge of the corporation's business, people and issues;
- the lawyers are available on a full-time basis; and
- legal costs of the corporation are better managed.
Accepting these reasons creates the purpose and foundation for the in-house lawyer. The in-house lawyer's role includes practising law, managing outside counsel, practising preventive law, and dealing with administrative and management matters. Each of these four activities should connect directly to the rationale for the in-house law department.
A corporate lawyer is compensated for how well these roles are performed, while ensuring that these activities help advance the corporation's business. This article looks at three forms of in-house lawyer compensation: (1) salary, (2) bonus and (3) stock options. There are, of course, many forms of non-monetary compensation.
Market Forces
During the past six years the in-house lawyer market has been on a rollercoaster ride. To understand better the significant challenges of those years, it is instructive to define three labour markets: the buyer's market, the seller's market, and what we will call the 2000 market (i.e., at the height of the bull stock market and the dot-com frenzy). The following table (Table 1) illustrates the various markets.
Table 1. Buyer's vs. Seller's Market
Each of these markets is familiar to experienced general counsel. The 2000 market phenomenon was unique. It extended beyond the seller's market and fuelled an incredible in-house compensation challenge for general counsel. In the year 2000, there was a nationwide ripple effect caused by tremendous increases in starting associate salaries in U.S. law firms, as well as attractive dot-com opportunities. Many general counsel sought strategies and tactics to mitigate the impact of this escalating compensation on their in-house staffs.
By the third quarter of 2002, the compensation landscape had shifted again. During the past 18 months a recession has developed in the U.S., the dot-com frenzy has vanished and many law firms are reducing the number of lawyers in their organizations. The 2000 lawyer labour market phenomenon has dissipated. Today's market appears to have moved to a traditional buyer's market.
Compensation Benchmarks
To understand whether in-house counsel are being paid what they are worth, a review of timely data, broken out by region, position and level of experience is vital. The most recent data available to assess compensation trends will be contained in the soon-to-be-published Altman Weil 2003 Law Department Compensation Benchmarking Survey (covering U.S. corporate law departments, published in partnership with the American Corporate Counsel Association).
The 2003 Survey (reporting on 2002 data) will show both ups and downs in compensation for in-house positions compared with the previous year. Looking at the big picture, there were either decreases or very slight increases in salaries in 2002 compared to 2001, but significant increases in bonuses, and slight increases in total cash compensation.
The survey breaks cash compensation into three components: (1) salary, (2) bonus and (3) total cash compensation. See Tables 2 and 3.
As can be seen from Table 3, for most positions, salary decreased from the previous year. The decreases ranged from 2.6 to 14.2 per cent, with the largest decreases for the attorney position. Chief legal officers saw a slight increase.
Bonus data (Table 3) showed increases for all positions. The increases ranged from 0.4 to 20.7 per cent. The largest increases in bonuses were for deputy chief legal officers, managing attorneys, division chief legal officers and chief legal officers. Over the past few years, many corporations have revamped their pay-at-risk strategies, putting more compensation in the bonus (i.e., at risk) category.
Total cash compensation (Table 3) mostly increased from the previous year as well, but not nearly as much as bonuses. The increases ranged from 1.3 per cent to 5.3 per cent, but with a slight decrease for managing attorneys and a significant decrease for the attorney position.
Conclusion
Based on the recent rollercoaster ride of lawyer employment and compensation trends, general counsel find in-house lawyer compensation on a much flatter track, at least for now. Although there were increases in compensation for many in-house lawyers in 2002, the increases were significantly lower than occurred during the recent boom years. Corporate counsel employment is stable, with little turnover and the existence of a buyer's market. The major challenge during 2003 will be finding ways in which to keep in-house lawyers motivated and happy, given the slowdown in compensation increases, and even decreases for some positions.
James Wilber is a principal of Altman Weil, Inc., a global legal consultancy.