As more in-house lawyers question the billable hour and continue to lean towards value-based alternative fee arrangements (VBFs), law firms are quick to counter that the economy is picking and that discounted fees may be nearing an end.
Who will win this tug of war? The economy may be the deciding factor.
A new study has some good news and some bad news for both law firms and in-house legal departments. The economy is on the rebound. The pace of claims for unemployment insurance continues to be the lowest since January 2008, and housing Rose 0.8 percent in February.
Confidence is also up. According to an article by Corporate Counsel, Managing partners’ overall confidence in the economy was up 18 points between the third and fourth quarters of 2012, and 85 percent predicted future revenue growth, according to the latest Law Watch Managing Partner Confidence Index survey from Citi Private Bank.
However, while we may no longer be in a recession, the economy still hasn’t really recovered. According to an article by the Washington Post, some 12 million Americans are still looking for work, and many millions more would confirm that it hasn’t felt like a recovery at all. That would include the people who have seen their incomes flatline or have been drowning in mortgage debt for years on end.
This is not just a feeling, but reality supported by hard data. According to the Post, since the start of 2010, growth has averaged 2.2 percent, which would be just fine in normal times, but is lousy considering the starting point was a time of mass unemployment and general economic despair.
In-house legal department are weary of the future and continue to be conservative with spending. As a result, large companies with leverage have been negotiating their way into discounted legal fees. Case in point, GlaxoSmithKline increased its use of VBFs from 3 percent to 68 percent; United Technologies Corporation’s use of VBFs is more than 70 percent; Home Depot, more than 75 percent; and Pfizer is 100 percent VBF according to Corporate Counsel.
In general, law firm managing partners are concerned that clients will continue to push for discounted fees. And they should be. Unless the economy begins to show stronger signs of a recovery, in-house legal department will likely continue to push and receive discounted fees.
Law school is important if you want to be a lawyer. But how important is it to choose the right law school? Does it really matter if you went to Harvard? Or is any program acceptable as long as you worked hard and have something to show for it?
Business Insider asked top legal recruiters all over the country to weigh in. Their answers might surprise you.
Lawjobblog conducted an analysis of organizations advertising in-house counsel jobs as which revealed 987 in-house counsel jobs across 312 cities across the US, and 1227 law firm jobs around the U.S. When you consider that there are approximately 24,000 unemployed lawyers actively looking for legal work, you start to realize how dismal those numbers are.
California accounts for 22% of counsel jobs and the top five states account for 51%, which include California with 209, New York with 89, Texas with 71, Massachusetts with 60, and Illinois with 54. Clearly, where you are located makes a difference. However, just because you are looking in NY or CA does not mean that your odds improve. In fact, it may be quite the opposite, as both NY and CA have the highest rates of unemployed lawyers in the country, with 7,500 and 3,000 unemployed lawyers, respectively.
If those numbers aren’t scary enough, consider that some 45000 people graduate from law school every year. Of course, a good number will end up working outside of the law, as there aren’t enough legal jobs to go around. Only 65.4 percent of law school graduates landed a job that required an attorney license in 2011.
Bonuses Boost GC Compensation Levels. While the average salary stayed essentially stagnant at $567,195, the average bonus/nonequity incentive compensation jumped 17 percent, to $1.1 million. That's double their average salary.
In 2002, the average bonus was $550,397 and exceeded the average salary of $503,545 by 9 percent. Five years later, the average bonus surpassed salary by an eye-catching 100 percent.
As for equity -- in the popular form of outright stock grants -- the trend also is up, by nearly 17 percent. Only two lawyers on the list did not receive either a stock award or option: Peter Janzen of Land O'Lakes Inc. and Gregory Doody of Calpine Corp.
Salaries Remains Low, But Steady. Lost amid all this talk of bonuses and stock is the lowly cash salary. In fact, salaries continue to make up the least significant portion of GC salaries. They held steady in this year's survey. Why? Corporations can't take tax deductions for any portion of a salary that exceeds $1 million. And if the company has a difficult year, they typically don't trim the salaries of top earners, preferring to trim the extras like bonuses and stock grants.
Stock Awards: Where the Money Is. Average stock awards increased nearly 17 percent this year, to $1.3 million, up from $1.1 million in 2006. Overall, 94 GCs received stock awards that totaled more than $124 million, a 23 percent increase over 2006. James Ellis of AT&T, who retired in 2007, got the largest stock award of $12,389,605. That award alone was 83 percent larger than the highest stock award last year.
Stock Options: Not As Fashionable. Meanwhile, the less fashionable stock option, the darling of the tech bubble years, fell 10 percent, to a relatively paltry average of $720,470. Volatility in the stock market didn't stop 56 attorneys from cashing out their stocks and realizing a gain of an average $2.4 million, though.
Make no mistake, though: While option grants are falling out of favor, option cash-outs, along with stock awards, are still making GCs very rich. Despite the ups and downs of the stock market last year, 56 general counsel made more than $139 million when they cashed in stock options last year. The year before, 56 GCs cashed in their options for a total of $155 million. The biggest winner was Donald de Brier of Occidental Petroleum Co., who made $21.6 million when he cashed out options. The year before, de Brier made nearly $10 million cashing in.
Total Compensation. Overall, these GCs walked away with nearly $304 million in total salary, bonuses and stock cash-outs in 2007, slightly less than the $307 million they took home the previous year. "Any general counsel who wants big money gets stock," says Rees Morrison, president of Rees Morrison Associates, a consulting firm for legal departments. "That's where the huge money is. If you're a GC, your money is in equity."
The Big Winners. Give Gary Lynch credit for making a dramatic entrance. The chief legal officer for New York-based Morgan Stanley debuted on Corporate Counsel's annual survey of general counsel compensation with a whopping $6.3 million bonus. That large pot of cash earned him the No. 2 spot overall on our elite roster. Despite the fact that financial institutions such as Morgan Stanley, which are reeling after the collapse of the subprime mortgage market.
Not everyone in the financial sector has had such a soft landing. Take John Finneran Jr., at the credit giant Capital One Financial Corp., for example. In 2007 Finneran's total take-home pay shrank by almost half, to $1.4 million. His discretionary bonus alone dropped 46 percent, to $690,000, compared to $1.3 million the year before. He made $42,029 by cashing in his stock options, a fraction of the $850,485 he cashed out in 2006.
Booming Industries to Watch. GCs in booming sectors of the economy fared better than many of their counterparts.
Oil & Gas. The Irving, Texas-based Fluor Corp. designs and builds everything from hospitals to power plants, but the oil and gas sectors account for about 50 percent of its annual sales. And like the record-breaking profits of oil and gas companies, Fluor's stock price rose from $109 a share last summer to about $186 at press time. The nonequity incentive compensation for the company's GC, Lawrence Fisher, skyrocketed nearly 275 percent, to $1.6 million.
Metals. It's no surprise that the largest incentive bonus of $7.7 million went to Jon Walton, general counsel of specialty metals manufacturer Allegheny Technologies Inc. The company's net income rose 30 percent last year, to $747 million, and Walton walked away with $8.1 million in salary, bonus and stock sales, 55 percent more than what he took home last year. That kept him securely seated in the survey's top spot for the second year in a row.
Financial Securities. The chief legal officers for financial securities companies once again received some of the meatiest stock awards, an average of $4 million, which is higher than any other industry.
Telecommunication. The six telecommunications lawyers were next on the list. They got an average stock award of $3.9 million, thanks in large part to Ellis' sizable stock award. Without that award, the average would be $2.2 million.
Entertainment. The five attorneys for big media companies earned a cushy average bonus of $2.2 million. Only the $3.5 million bonus awarded to The Walt Disney Co.'s Alan Braverman was tied to company performance.
Aerospace & Defense. Top lawyers in the aerospace and defense industries earned millions by cashing in their stock options, too. Their six general counsel made an average of $3.5 million each by selling their stock in 2007. Roger Cook of Portland, Ore.-based Precision Castparts made the most, $5 million.
What Does This Mean Going Forward? Bonuses and stock awards will likely continue to inch upward, but they'll be increasingly tied to market fluctuations and their company's performance on Wall Street for years to come. That means that it's anyone's guess whether or not the survey's $6 million man, Gary Lynch, or any top lawyer at an investment bank, will make it to the top of the list next year.