05.10.2024

Life After Lockstep: Understanding In-House Counsel Compensation

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Danielle Kruger is a search director at Pye Legal Group. Before transitioning to legal recruiting, Danielle practiced law for nine years in a big law firm, an in-house legal department and in a small firm.

Danielle can be reached at danielle.kruger@pyelegalgroup.com

Law firm associates are often surprised at the lack of compensation transparency for in-house positions — particularly in states like Texas where disclosure is not required. These lawyers have spent their careers in a lockstep compensation scheme. Most associates know they will receive less cash compensation at a company than at a law firm, but their knowledge often ends there. Understanding a typical in-house counsel compensation package is a crucial part of considering a transition from a law firm to a corporate legal department.

It can be helpful to think of compensation in four potential buckets. The first is base salary. Big Law firms typically have a very public and competitive salary/bonus scale that is directly related to the attorney’s class year. Companies’ salary information is not readily available. Unless required for SEC disclosure, base compensation within a legal department is opaque. The base salary for in-house positions can be substantially lower than the base salary offered by law firms. For example, last year we placed a 2018 M&A associate from a top firm (which means this person was making $370,000 base on the Big Law salary scale at a small public energy company with a base of $205,000. Given this individual’s strong credentials and experience, this was an above average but not atypical offer. Many Big Law associates do not explore an in-house position further after learning the likely base salary. But base salary is only the first bucket, and not including other buckets can be a big mistake.

The second bucket is short-term bonus, which is typically an annual cash bonus opportunity tied to a percentage of one’s base salary. Weary associates can breathe a sigh of relief knowing that their bonus is not tied to hours worked. Different companies have different bonus payout schemes, but, most typically, a combination of company and individual performance will determine the availability and the size of a candidate’s bonus. We see a very wide range of percentages, but there are a few notable trends. As expected, one can count on a higher percentage the more senior one is. The disclaimer is that, while “senior” in the law firm world might mean 8-10 years, someone with that much experience would be considered fairly junior in the grand scheme of one’s in-house career. Also, companies with more volatile performance or those that are in the earlier stages of development may offer a higher percentage target bonus but also have a higher risk of not paying bonuses at or even close to target. In evaluating different in-house opportunities, attorneys should ask for the company’s recent history of bonus payouts and whether employees meeting or exceeding expectations have received their target bonus.

The third bucket is long-term incentives. LTI are often only available with public companies but increasingly are offered by privately held companies as well. LTI may include shares (restricted stock units), stock options, phantom stock, pensions (increasingly rare), cash awards paid out over multiple years or some other vehicle that rewards longevity. Newer companies, many of whom cannot justify to their owners a high base salary for an attorney, are more likely to give generously on the long-term incentives. This can have a high risk/reward payout, so it may depend on your level of comfort with risk and your personal financial obligations. Valuing those incentives is not as straightforward as cash, but often the awards accumulate year over year in a way that can be lucrative.

Even among companies that offer long-term incentives, not all positions may be eligible to receive these benefits. Two major factors in one’s favor to receive long-term incentives are seniority and tenure at a company. We also find that corporate/securities attorneys who are involved with reporting duties are more likely to be eligible for long-term incentives, even if they are junior and have no direct reports.

The fourth bucket is “other.” “Other” is the catchall that is often forgotten but can make a huge impact. Other includes retirement contributions, healthcare benefits, PTO, car or phone allowances, gym memberships or other valuable perks. We have seen 401(k) matches up to 8 percent and additional retirement savings up to 14 percent of a lawyer’s salary. One of our clients regularly gave employees a $9,000 annual car allowance. A lawyer friend receives free gourmet lunch from her employer every day she is in the office. Other unique examples we have seen include pet insurance, college scholarships for children of employees or backup childcare. Also, corporate health benefits are often less expensive and greater in coverage than health insurance in law firms. The “other” category may be overlooked and harder to quantify, but it can mean thousands of dollars’ difference in terms of what is in your bank account.

When considering an offer, we encourage candidates to think about the total compensation package and not focus on any one component. Recruiters can be helpful in letting you know if an offer is reasonable and at market. They are often privy to information on a company’s bonus payout history, which can help determine if that stated bonus percentage is more theoretical or a likelihood.

A very cloudy area at companies is what annual or merit-based increases may look like in years to come. This can be especially terrifying for Big Law associates who are used to lockstep increases or, at least, clear, public information on the annual salary increases they can expect. Most in-house positions do not regularly get a large increase as one would at a law firm. Companies’ annual salary increases are often closer to cost of living adjustments. To truly merit a significant comp increase at a company, something more fundamental, such as one’s title, responsibilities or team structure, would need to change.

While base salary will typically make up the largest percentage of one’s compensation, ignoring the other areas means compensation comparing is not apples to apples. Attorneys who are interested in potentially moving in-house must consider all components. They should be open-minded to a different compensation structure so as not to miss out on what could be a very rewarding career shift.

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