Today's general counsel shoulder a great deal of responsibility for the legal well-being of some of the world's largest and most complex corporations. And if current trends hold, they will continue to become even bigger players in corporate strategy and risk management in the years to come.
It's a select group, especially those who make it into the elite ranks of our survey of the best-compensated GCs. And since compensation components vary so much from year to year, a compensation king (or queen, perhaps one of these years) may not reign for very long.
And so it is with Brackett Denniston III, general counsel of General Electric Company and reigning compensation king two years running. Who's the usurper? Alan Braverman, the The Walt Disney Co.'s general counsel,who brought home a whopping $6,699,231 in total cash compensation, according to the 2015 General Counsel Compensation survey, which was conducted by Corporate Counsel affiliate ALM Legal Intelligence and based on publicly available information found in 2014 proxy filings. [For a more complete explanation of our methodology, please see "Adding Up the Sums."]
Representing Mickey and friends is a pretty good gig. Braverman made a base salary of $1,374,231, plus a performance-based bonus of $5,325,000. That wasn't all. We rank top-earning GCs by their cash compensation, but Braverman's pay packet, like that of most others, included nearly $2 million in stock awards and more than $1 million in stock options as well.
No one on the list had as outstanding a year as Braverman. But overall, GC pay packets got fatter as the lean years of the financial crisis fade even further into the rearview mirror and the nation's general counsel continue to gain increased responsibility and organizational clout. "As far as compensation goes, the numbers are very good," says John Gilmore, managing partner at executive recruiting firm BarkerGilmore, based in Fairport, New York. He explains that this is at least in part due to the fact that GCs are under pressure to do more for companies than they have in the past. "They are bringing a lot of legal work that used to be on the outside inside the department," he notes. "They have a lot more on their plate now than they ever have had." Luckily, with great power, it seems, comes bigger paychecks.
Compensation structures for any high-level executive can get complicated, but a good place to start is with cold hard cash. In this year's survey—we feature the best-paid 100 here, not the entire universe of chief legal officers—average total cash compensation (the metric we use to rank our top 100 general counsel) increased by 6.2 percent, to $2,095,191, which is only a very slight dip from the previous year, when it increased by 6.4 percent.
This measured but positive pace of growth is a big improvement from recession years such as 2009, when take- home cash pay actually dropped by 11.1 percent. Solid if not overwhelming gains in compensation in 2014 helped produce some strong numbers atop the charts. Behind Braverman in the rankings came Denniston with $6,096,00 total cash take-home, and Paul Cappuccio of Time Warner Inc., with $5,864,715.
These numbers are impressive, but without breaking them down, it's hard to get the full picture. The first element of total cash compensation is base salary, which averaged $706,453 for the GCs in the top 100 this year, a jump of only 0.8 percent from the 2013 numbers. With some exceptions, like 21st Century Fox Inc.'s Gerson Zweifach, who raked in the best base salary in the rankings at $3 million, this is not to be the area where GC pay flourished most.
Gains were stronger in another part of the pay package: bonuses plus nonequity compensation, which trended upward by an average of 9.2 percent in 2014. This category includes discretionary bonuses paid by the board, in addition to cash pay based on performance, which has become increasingly popular since the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. Dodd-Frank raised the bar for executive compensation disclosures, and gave shareholders the ability to weigh in on this type of compensation through "say on pay" votes. The impacts of the law, combined with a growing public concern around executive pay post-financial crisis, have prompted companies to prove to shareholders that general counsel are earning their keep, and performance based pay—which can be doled out in either cash bonuses or equity—are one way to do this.
So how is general counsel performance measured? Let us count the ways. If that sounds vague, that's because it often is. We asked compensation experts to pin it down, and we got fuzzy answers—though most stressed that it's a reflection of the tough jobs top company lawyers have these days. "It's often not as specific as something like a litigation outcome, unless it's make-or-break for the company," offers Todd Sirras, managing director of Los Angeles-based executive compensation consulting firm Semler Brossy. "It's more on corporate goals or objectives, and in many of the larger companies' performance measures are shareholder returns."
Speaking of shares, though cash pay for GCs in our survey was nothing to sneeze at, the truth is, equity is still what makes executives the big bucks. And in a trend reminiscent of the dot-com boom years, pay packages are now emphasizing this type of compensation more. "It's a multiyear trend that's going on, it's a pattern that in recent history happens in periods of stable or rising equity markets," says Sirras. "It's fully in line with what we would expect to see."
With the overall financial outlook rosier, at least when it comes to corporate earnings, general counsel seem to be more than happy to get paid in stock. But that, of course, could change with even a whiff of a bear market. "If the equity market continues to be strong, then I think you'll see more increase in equity," Sirras explains. "If the equity market weakens significantly, I think you'll see cash become more valued; it becomes more effective as a tool to create more incentives for people."
For now at least, stocks look like a sure bet. We found that the average stock awards received by GCs in 2014 increased by an eye-popping 49.4 percent. Some of that progress can be attributed to an outlier—David Drummond, general counsel of Google Inc., who received $40 million in stock awards this past year. However, even excluding Drummond, the rise in awards is still an impressive 21.9 percent on average.
We should keep in mind that there are shares and there are shares—they come in two basic forms, restricted grants and stock option awards. Restricted shares, which came into vogue when tech share prices tanked, are seen as solid, as general counsel don't have to wait a year or five or 10 before the equity vests and they can sell their shares. The case is different with stock options, which by vesting over time means higher risks due to strike prices and the vagaries of the market, but they bear the promise of higher rewards. Over the last few years, options have not performed well in the survey, likely because postrecession, the risk appetite of GCs has been lower.
Suddenly, though, in 2014 all of that seems to have changed. Options made a big comeback with general counsel, with the average option award growing by 11.8 percent over the previous year. And some GCs really benefited from the action, such as this year's option king, Burke Norton, chief legal officer of Salesforce.com Inc., who snagged $3,245,944 in option awards this past year. Bob Graff, a partner and recruiter in the in-house practice group at Major, Lindsey & Africa, a legal search consultancy based on Hanover, Maryland, says that options may very well be more in vogue this year, particularly for younger (and perhaps less risk-averse) general counsel. "Options went out of style for a while, but generally what we see is if a company gives you actual shares or restricted units, they're going to give a lot fewer units," he explains. "So it really limits your upside."
Though the average option award went up in the past year, the numbers around value of stock after it actually vests told a bit of a different story. The average value realized on vesting dropped 6.8 percent in 2014 from the previous year. As for the value of shares actually exercised, that dropped as well, by 20.2 percent. This means that perhaps GCs are not getting the full bang for their option buck.
The type of business a general counsel advises can also have a large influence on the number of zeros in their paycheck. The Bravermans and Dennistons of the world rode to the top in part because their industries have a record of paying GCs handsomely. Of the top 10 best-compensated general counsel on our list this year, five are the top lawyers at entertainment companies, and three are financial sector GCs. The total cash pay in these two industries also topped the charts again this year, while railroads, a perennial low scorer, and retail, which has historically been closer to the middle of the pack, rounded out the bottom of the list.
Big payouts in financial services and entertainment align well with the difficult and novel issues that GCs in these industries face. "Especially in entertainment, there's a lot of IP protection required, and on the financial side there is a lot of regulation," says Sirras. "The general counsel at these larger companies has to be able to balance all of that and protect the consumers' and shareholders' interests and manage what are often far-flung and diverse and global regimes from the regulatory perspective, as well as all kinds of IP protection regimes that are different in different countries and media."
Beyond the industry breakdown, we also took a look at how female general counsel fared in our rankings. The list features many prominent women this year, with Maryanne Lavan of Lockheed Martin Corp. (No. 11) nearly breaking into the top 10. It seems that gender equality in the GC's office is getting slightly better over time, although women in the top 100 still made less total cash on average than men—$1,955,175 to their male counterparts' $2,123,869.
Diversity in the general counsel's chair is clearly a work in progress, according to Nancy Jessen, managing director at Huron Legal, a branch of Chicago-based Huron Consulting Group Inc., but many companies are getting increasingly proactive about it. "What they are doing is making sure they are giving a very fair shot to women and minority candidates," she says, explaining that when looking for new top legal talent, many are making sure to include qualified females and minorities in their search and in the interview processes, while also ensuring that the actual search committees have diverse representation.
In order to get a more diverse set of GCs at the top of the survey, of course, the ranks have to open up as older general counsel retire or switch jobs and newer ones step in to fill the gap. And this may indeed be happening. "We haven't seen a slowdown at all," says John Gilmore. "We have seen an escalating number of general counsel openings, and what we're attributing it to is because the economy is in good shape, many of the general counsel who have been around for a long time are in a good financial situation. They're in a place where they can financially move on to bigger and better things."
A healthier economy may indeed be feeding more general counsel turnover, With this increased movement, explains Jessen, comes the opportunity for companies to redefine responsibilities for the new legal chiefs. "Often when there is turnover and a company is bringing in a new general counsel, they have much higher expectations for that role when someone is coming in," she says, adding that changed standards will then often benefit the newcomers by leading to superior pay plans.
The cycle of a better economy, to more movement in the job market, to better pay appears to be a virtuous (and profitable) one for general counsel. But will it continue? We'll have to wait until next year's survey to find out.
Originally appeared in print as He Can Afford This
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