GC Compensation

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The duties have multiplied—and titles, too—but compensation for GCs is rising again

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Photo of MARSHALL T. SCOTT
MARSHALL T. SCOTT: Senior executive pay consultant with Towers Watson says GCs are seeing "a nice bump in compensation."

After a few comparably lean years, the compensation gods once again are smiling down at general counsels in large public companies.

Marshall T. Scott is a senior executive pay consultant with Towers Watson in Chicago who advises large companies on their executive pay programs. He says that overall worth for GC in large public companies have gone up both literally and monetarily.

"Going back a few years, there is more value going to the general counsel's position and it's somewhat driven by the industry," he says. "With all the new regulations in the financial services industry, for instance, the role of the GC has become more valuable and valued. It's the same where intellectual property factors in heavily and you need a GC who can defend and understand the new regulations. GCs who do a lot of regular transactions, special litigation and environmental law are seeing a nice bump in their compensation."

Steven Slutsky, a principal and compensation consultant for Pricewaterhouse­Coopers Human Resource Services in Philadelphia, agrees that the role of the GC has expanded, and with it, compensation.

"There is a trend that we are seeing among certain industries, such as financial services and other highly regulated ones, for an increase in income because the GC role is expanding," Slutsky says. "The GC is taking on a larger role because of greater regulatory issues, environmental issues and the increased scrutiny of shareholders and stakeholders. They are getting more recognition for having a seat at the table."

In addition, more GCs are taking on additional business and operational responsibilities, he says. "They are getting to run business units and have more of a role in planning overall strategy rather than simply offering legal advice," Slutsky says. "And, with that, of course, comes more monetary compensation."

As this occurs—GCs running business units—Slutsky says he believes more GC eventually will become CEOs. "I think that will be a slow process but over time, I think that will occur more. Certainly not in the next two years or so, but traditionally running business units helps gets you the top chair."

Several of the top general counsel on the Daily Report's annual compensation list had multiple titles. Just in Georgia, seven out of the top 10 highest compensated GC also were the company's secretary and in some cases, also chief administrative officer.

Also factoring into the GC salary bump is that a corporate position is becoming more attractive to top lawyers.

"The recruitment of general counsels is much more active than it has been in the prior two years," says Joel Koblentz, CEO of the Koblentz Group, an executive search firm. Koblentz handled the recent placement of Beth Chandler as general counsel for Rollins. "They are attracting talent and are having to compete for it. The competency of the candidate pool has gone up and corporations are having to pay a premium to attract them."

Koblentz attributes this to the "skinny down of the legal department and that more lawyers want to be in a corporate setting rather than deal with the pressures of working in a law firm." In addition, he says corporations are finding it "cheaper to have their own team than a team on the outside."

Koblentz also agrees that with corporations having to deal with increasingly tough regulations, such as Dodd-Frank, that "companies are willing to pay a premium for the talent and experience. Because of this, general counsels are much more in the inner circle these days. Legal talent is precious right now."

But getting down to the hard numbers, boards are requiring executive compensation to be tied directly to the performance of the company.

"After 2008 or '09, there was a reset in compensations and many companies froze the salaries of executives or bonuses weren't given out. Especially in 2008, a lot of companies didn't hand out bonuses because the performance of the company didn't warrant it or they were nervous about the state of the economy and the world," says Scott, who is also an attorney.

However, a bit of optimism filtered into the corporate boardrooms in 2010 and the compensation gates opened again—slightly. "The feeling was that the companies had weathered the worst and pay inched up or bonuses were given out," Scott said. "Certainly they were conservative. There wasn't a sense of overpaying to make up for the past couple of years. Again, executive pay tends to be correlated to the stock price. So if the stock is up, the value is up."

Several of the companies on the compensation top 10 lists noted their recent successes in SEC filings, resulting in increases in compensation.

Primerica, for example, stated in its proxy statement that incentive compensation reflected its financial and distribution results. "Operating results for fiscal 2012 were strong, and the size of our life-licensed sales force increased for the first time in four years," the statement says. As a result, Primerica's compensation committee approved a corporate performance payout equal to 104.4 percent of the target bonus amount.

Balancing the "strong personal performance with weaker performance against the corporate sales force objective," the committee decided to pay each of its named executive officers between 100 percent and 120 percent of the individual portion of the individual's target bonus amount."

AT&T reported that its 17.5 percent total stockholder return outperformed the Dow Jones Industrial Average and, along with other strong performance metrics, resulted in it awarding executives base salary increases of on average 2.4 percent.

Scripps Networks Interactive found its 2012 consolidated operation revenue was up $2.3 billion—an 11 percent jump over 2011—and advertising revenue up $1.6 billion—a jump of 9 percent over 2011—so it awarded salary increases of 3.6 percent to 6.5 percent to its executive team.

Overall, companies have been more profitable, says PWC's Slutsky. "They are getting more operationally efficient and also concentrating more on things such as customer service, so from the top and bottom lines they are seeing more profits. And the pay increases and bonuses are aligned with those performances. We are seeing this over the past year or maybe two."

One piece of executive compensation that does not seem to be bouncing back is perks.

Slutsky says that the reduction in perks is driven, in part, by the SEC's requirement of "enhanced disclosure" in 2007, which shed light on them and caused the board of directions and compensation committee to align them more closely to the business needs of the organization. As a result, many were reduced or eliminated.

Increasingly, companies are eliminating such previous de rigueur perks as country club memberships and first-class travel, Koblentz says. Some are ending health care benefits for family members as well.

Scott says one of the reasons is that these sort of perks "tend to be more irritants to the board and compensation committees. They're viewed as being small in value but conferring a sort of status and class distinction rather than due to merit or performance."

Perks that won't go away are where there is a seen value to the company. "Helping to pay for financial planning is one," he says. "These people have a complex pay structure and someone has to help them out. HR doesn't want to."

Executive physicals and security are two other perks that are pretty solid. "You can make a strong case for wanting to keep these executives healthy and safe. There have been cases of executives or their families who have been kidnapped, and no one wants that. There are real reasons and benefits for the company for those benefits; it's not a class issue," Scott says.

As for this year, expect most compensation boosts for general counsel to continue to be tied to the company's performance.

"There's been a lot of changes in compensation over the past couple of year," says Scott. "I think we've reached a point of relative stability—certainly more than in the recent past. I think there's a calm in the boardrooms. Everything is relatively stable and I expect that to continue."

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