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Great advice from The Lawyer Whisperer

March 16, 2016
Question

Are companies now matching law firm associate and partner salaries in order to attract good candidates?

answer
Julie Q. Brush

1997 marked the beginning of the “dot-com boom” and the start of a paradigm shift in how company executives thought about lawyers and their value-add. Consequently, an increasing number of lawyers were brought “in house” to serve as primary legal executives for the company. At the time, cash compensation for these lawyers was underwhelming (stock was the primary currency). Meanwhile, law firm management set new records for associate compensation. So the comp gap between those in house and those in law firms was wide – with law firm associates and partners earning significantly more than their corporate counterparts. This gap was also noteworthy in that it served as a disincentive for associates and partners to leave their firms for in house pastures – and enabled law firms to keep a tighter grip on their lawyers.

2001 marked the beginning of the “dot-com bust” and many companies riding the wave of hype lost their momentum and went away. This slowed down legal hiring, but the value of and appreciation for the in house lawyer remained. And company legal departments continued to grow slowly…but surely.

Fast forward to 2016: The economy has pulled out of its 2001 and 2009 tailspin. The private company market is thriving. Public companies are growing and expanding. And the number of in house lawyers is at an unprecedented level. Another variable that’s changed is in house compensation. With increased respect, importance…and budgets for Legal, corporate execs and GCs have more money to spend on their lawyers. And the war for the best legal talent (and it is a war) has driven in house compensation closer to the moon. For those companies who want to effectively compete in today’s legal hiring market, the ante is a “competitive” compensation package.

So just how competitive is “competitive”? Does it match the big bucks offered by law firms? Or does a gap still exist?

While the base compensation numbers have risen for in house lawyers, they still do not reach the heights of those offered to law firm lawyers. Depending on seniority…and title, in house base compensation is typically 10% – 20% lower than base salary at a big law firm (a few outliers do exist and some companies structure compensation differently, which can create the illusion of a break the bank base salary). With this said, in house compensation consists of two (potentially three) additional components: a target bonus, a signing bonus upon acceptance of an offer and stock – which bridge, and in some cases exceed the compensation gap.

For junior in house lawyers, target bonus range is 10% – 15%. For midlevels, it’s 15% – 25%, and for senior, non-GC lawyers the bonus target can reach up to 50%+. Stock is another variable that can kick in house compensation into high gear. Depending on the company, vested stock and follow on grants can offer $30k – $300k+ per year in added income. And then there are the perks: free thises, discounted thats, – and things that might be viewed as priceless: better hours, no business development pressure or billable hour requirements. Pretty enticing for today’s law firm lawyer.

Gone are the crazy days of the dot-com boom, but the era sparked a turning point in the evolution of the in house legal department as well as the compensation gap between in house lawyers and their law firm counterparts. 19 years later, the in house market is more vibrant than ever and law firm lawyers – at all levels – are flocking to join the corporate legal ranks. And despite the current delta on the base salary, the bonus, stock and other benefits offered are additional carrots that can…and usually do…make such a move hard to resist.

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