Base salary increases are slowing within in-house legal departments. The average increase in 2010 was 2.6%, compared to about 6% just two years ago. Base salary increases will most likely continue to remain flat in 2011. Legal departments have cut expenses as far as they could, and while they could potentially trim a little more, they have a lot less to work with at this time. The bleeding and heavy cost cutting has already happened, now it’s more about maintaining status quo, and trying to keep people on board. There is a sense of resignation and acceptance when it comes to low base salaries and freezes. Counsels have no choice in the matter because no one else is offering anything different, and jobs remain hard to come by.
Who Will Most Benefit From Merit-Based Compensation?
About 93% of all salary increases are merit-based, which is a huge incentive for in-house counsel to find ways to please their companies. What are some ways to do this? What skills are receiving praise? Are alternative fee arrangements and other cost-cutting measures resulting in salary increases?
In-house counsels that benefit from merit-based compensation are those who know how to deal with the changing times, and can demonstrate flexibility, adaptability, and creativity in the workplace. They are what I call the “MacGyver’s” of the legal world, counsels who can come up with creative strategies to accomplish their goals with few resources available. In-house counsels that tend to be highly regarded are also those who know how to save their company money, by effectively managing outside counsel fees or resolving ongoing litigation. There are also those who help contribute to the bottom line and generate revenues by mining the company’s intellectual property portfolio, or identifying new business opportunities. In short, counsels who do many things with few resources, cut costs, and contribute to revenues are the ones who will benefit from this new incentive-based environment.
Despite a push by companies and slow acceptance of alternative fees by law firms, the billable hour still rules, and savings resulting from these cost-cutting measures have not had a major impact on salary increases. Primarily, because the saving from alternative fees have been relatively modest, and second because law departments have been looking to keep costs down and their expenditures flat.
Corporate Governance – What has increased the demand in this practice area is the result of the recent legislative and regulatory proposals generated by Washington as a response to the financial crisis of 2007–2010. This led to widespread calls for changes in the regulatory system that plunged the country and the rest of the world into an unprecedented recession. The result was the adoption of the 2010 Dodd-Frank Act, which contains new governance obligations for all public companies. Companies are trying to respond to what has been termed to be “the most sweeping change to financial regulation in the United States since the Great Depression.” As a result, this has increased their reliance on legal counsels, who in turn have had to further focus their attention on new provisions and requirements guiding corporate governance matters.
Regulatory – This era of heightened scrutiny has made regulatory demands and requirements increasingly more intrusive, and the practice more defensive. Companies are gearing up accordingly, which has resulted in a demand boost in this practice area.
Labor and Employment – The combination of an ailing economy, business downsizing, a declining job market, and increased government enforcement is dramatically increasing employment lawsuits. Companies are on the defensive as they are sorting out differences with employees in a continuing downsizing marketplace. The EEOC has announced several regulatory initiatives from President Obama, which we are also now starting to see come into play. If there is a rise in litigation, labor and employment disputes will account for a significant number of those lawsuits.
Healthcare – With health care reform a reality, health care law is hotter than ever. As part of the newly enacted health care reform package, Congress tightened rules and statutes relating to the prosecution of health care fraud offenses. There were also modifications to the Anti-Kickback Statute under the Patient Protection and Affordable Care Act, the new requirements for compliance under Physician Payments Sunshine Act. In preparation for addressing these legislative changes and reporting requirements, healthcare organizations are turning to healthcare lawyers to help them comply with these reforms, making the practice a very hot one. If the new Obama healthcare plan has boosted the need for healthcare lawyers, the aging of America’s population, has also increased the market for healthcare organizations. With a booming business on the horizon, healthcare organizations are likely to be growing in areas with high popularity densities such as Arizona, Florida and parts of the Midwest, which in turn are expected to enjoy a rise in the healthcare practice area.
Intellectual Property – Intellectual property is an organization’s most valuable asset, and securing that asset has made intellectual property a recession-proof practice. When the economy declines, it usually forces companies to think “outside the box” and look for new products, inventions, or ideas. This usually translates into an increase in services to help protect the intellectual capital of these companies. Invention and innovation is what keeps companies competitive, and intellectual property lawyers, paralegals, and other professionals very busy. High tech companies are in the business of invention and innovation, and they are the main consumers of intellectual property services. Primarily, concentrated in California, Silicon Valley and Lost Angeles County have become intellectual property litigation and patent prosecution hotbeds. Other states with a strong high tech industry presence that are enjoying a surge of intellectual property activity include Texas, New York, Florida, and Virginia.
In-House Practices that Will Heat Up in 2011
Mergers and Acquisitions – M&A activity has been on a “wait and see” path for some time as the system remains vulnerable and fear lingers. However, the good news is that the fundamentals are in place for M&A to start picking-up again. In 2010, the U.S. economy has found some stability and returned to growth, and consumer confidence strengthened. Companies who have weathered the worst of the storm will be looking for a new growth engine, and may be returning to the M&A market. Companies will most likely go in “toe first” and will likely stay away from very large, multi-billion dollar deals, in favor of “smaller acquisitions” to complement and strengthen their existing business, rather than enduring the burden and risk after a large M&A deal. As a result, we will most likely see an uptick in M&A activity over the next year or two. Some of the bigger deals will most likely occur in consolidating industries, such as energy and healthcare. As usual, technology companies also are expected to be on the prowl. We may also see some increase M&A activity with the real estate market and the financial industry, which is finally recovering. In terms of geography, emerging markets will lead the M&A surge in 2011, with Asia in the lead.
International – As companies look to focus on expanding their core businesses and increase their market share, they are likely to look outside of the U.S. as part of their competitive strategy. This will drive the international law practice. U.S. companies will continue to look opportunities in the three most popular emerging markets—Brazil, India and China. Some other markets that may generate some new and renewed interest may include Mexico, Vietnam, Korea and the Middle East, with Turkey, Saudi Arabia, and the United Arab Emirates as attracting most of the attention. This boost in international transactions will come primarily from companies in the consumer and infrastructure sector seeking to expand into new markets.