How In-House Lawyers are Compensated

Post published:September 8, 2019
Post Category:Career / Income and Compensation
Post Comments:307 Comments

Compensation for in-house lawyers can be a little more complex than for W-2 employees at law firms, particularly when looking at the different components that make up compensation.

For in-house lawyers, there is typically a base salary and a target bonus opportunity.

Base Salary

The initial base salary is negotiated when a lawyer first joins the company. For lawyers coming from Biglaw or the government who are used to fixed salaries by class year, negotiating a salary can be a new experience.

Your ability to negotiate your starting salary will depend on your leverage and the demand for your services. Typically, companies have a salary range set by HR for each level of employee, so keep in mind that will very likely be an upper limit that cannot be exceeded.

If you are looking to go in house and aren’t desperate to accept whatever offer you get, do your best to negotiate your starting salary. I have seen or heard of applicants who left thousands of dollars on the table by accepting an initial offer without offering a counter.

Also, keep in mind that the base salary will not increase by a set amount every year based on seniority like it does for law firm associates at Biglaw. Compensation practices vary widely by company, and it might be the case that salary increases only occur with annual cost-of-living adjustments and/or promotions.

Bonus

At many companies, where HR has to manage compensation for many different types of employees, the bonus opportunity is equal to a percentage of the base salary. The bonus percentage is based on your level within the corporation – so a “manager” level lawyer may have the same target bonus percentage as a “manager” level engineer (e.g. 20% target bonus percentage for all “managers”).

In good years where the company outperforms, employees may get more than the target bonus (e.g. if the bonus is funded at 150% of target, then an employee with a 20% target bonus would get a 30% bonus). In the lean years, the bonus could be less than the target amount or even zero.

Equity

In-house lawyers at public companies may also receive compensation in the form of equity grants. Common forms of equity grants are:

Restricted Stock Units (RSUs) – shares of company stock that vest over a period of time
Performance Stock Units (PSUs) – similar to RSUs except there are also performance thresholds that needs to be hit for the PSUs to vest
Incentive Stock Options (ISOs) – options granted to employees allowing employees to purchase company stock at a set price.

Some lawyers may receive initial equity grants as a part of a signing bonus when they first join the company. In addition, some lawyers may receive an annual re-fresh of equity grants.

Like with the target cash bonus opportunity, lawyers who receive an annual equity grant typically have a target % amount multiplied by their base salary. For instance, a lawyer with a base salary of $200,000 and a target equity grant of 20% would receive a grant from the company of $40,000 worth of equity.

For each of these types of equity grants, there is a vesting component that requires employees to wait until a specified time (e.g. yearly, quarterly, monthly) before they have the ability to sell their equity. This often has the effect of incentivizing employees to stay at the company until their equity vests (i.e. golden handcuffs)

Working at a public company does not guarantee that a lawyer will receive stock compensation. There may be a level cutoff within the organization that determines who receives stock compensation. As a general matter, the more senior you are (in terms of your level at the company, not years of service), the greater your stock compensation and the greater the % of your overall compensation that will be made up by stock compensation. The general counsel may receive the vast majority of her compensation in stock – how well she is compensated will depend largely on company stock performance.

A public company may also have an ESPP program (employee stock purchase program) that provides employees the opportunity to purchase company stock, at a discount, in an amount equal to up to 10% of her salary plus bonus.

The money used to purchase the stock is deducted through payroll using after-tax funds. There is a purchase period established by the company, and under the terms of the ESPP program, employees are typically able to purchase company stock at some percentage discount.

In years where the company’s stock performance rises dramatically, employees participating in ESPP can do very well. In years where the company’s stock performance is flat or drops, employees can make little from ESPP or even lose money.

Private Company Equity

Lawyers at private companies may have more limited opportunities to receive stock compensation, and in some cases, the opportunity is non-existent. However, startup companies are often the exception and will grant equity, typically in the form of stock options, to some, or even all employees, from the CEO down to the secretary.

It used to be the case that many startups underpaid on the salary component and would entice employees with equity. In the short term, this helps a company conserve cash.

Anecdotally in talking with friends and colleagues, I hear that the pendulum has shifted where many startups, especially well-funded ones, now shift more money to salary and have ratcheted down the equity grants – venture capitalists and founders have realized the downside to giving away stock cheaply and making the in-house graffiti artist a multi-millionaire.

Other Benefits

In-house employers may also offer other types of benefits not available to employees in law firms.

For instance, many corporations provide some sort of 401(k) match, though that can depend greatly on the size and type of employer. The corporation may also offer discounts for their products and services, as well as discounts from major suppliers and customers of the company (though law firms have these too!)

Many corporations may also offer deferred compensation plans to highly compensated employees of the company. The plans are typically quite customized and allow participants to defer a part or even all of their compensation (and therefore taxes on that compensation) to some point in the future.

This can be particularly attractive for those who already max out their traditional retirement plans (e.g. 401k) and are looking for additional ways to defer income into lower compensation, lower tax years. In my opinion, the biggest downside to these plans is that if your employer files bankruptcy, your funds are not guaranteed to be returned to you, and you would become an unsecured creditor of the company.

In-House Compensation Data

Information and data about in-house compensation is not as transparent or readily available as it is in Biglaw, where profits per partner and associate salaries and bonuses are available through a few quick Google searches

Attorneys who are named executive officers at U.S. public companies will have their compensation information included in the company’s annual proxy statement, but that typically only provides, at most, compensation information for the general counsel.

Getting good data about in-house compensation often means a combination of finding whatever is publicly reported in surveys, talking with fellow lawyers and sharing and exchanging information with colleagues.

Some of the surveys that I’m aware of are the Robert Half Guide and the Major Lindsey in-house compensation report

What data and other sources of information do you have for in-house compensation?