General Counsel Pay Trends 2016

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1 Equilar Publication November 2016 $ General Counsel Pay Trends 2016 An Equilar Publication An Featuring Commentary by BarkerGilmore

2 General Counsel Pay Trends 2016 Equilar TrueView Benchmark with the best. Data. Equilar is the #1 provider of board intelligence solutions, collecting information on more than 150,000 executives and board members from thousands of public companies. Decisions. Our cloud-based platforms organize board intelligence data into easily digestible formats, delivering compensation benchmarking, board recruiting and shareholder engagement tools with accuracy and integrity to inform better business decisions. Results. Our engagement tools bring together companies, shareholders, and third-party advisors and service providers to drive exceptional results. Equilar Market Peers No art. Just science. Equilar Pay for Performance Win your Say on Pay vote. Equilar BoardEdge Build a high-performing board. Education Forums Learn from the experts. Find out why institutional investors with more than $13 trillion in assets, more than 70% of the Fortune 500, and the world s top media outlets such as The New York Times, Bloomberg, Forbes, Associated Press, CNN Money, CNBC and The Wall Street Journal trust Equilar. Knowledge Center Stay updated on today s governance topics. Learn more at: Custom Research Custom data. On demand. 2

3 General Counsel Pay Trends 2016 Table of Contents CONTENTS Executive Summary 4 Key Findings 5 Methodology 5 Total Direct Compensation 6 GC Median Total Direct Compensation, by Revenue Range 7 Median Total Direct Compensation, S&P 500 Companies by Sector 8 Median Total Direct Compensation, S&P 500 Companies by Tenure 8 Median Ratio of CEO-to-GC TDC, by Revenue Range 9 Pay Components 10 Median GC Pay Components, by Revenue Range 11 Average Pay Mix, by Revenue Range 12 Average Pay Mix, S&P 500 Companies by Sector 13 Long-Term Incentives 14 Median Long-Term Incentive Target Values, by Revenue Range 15 Long-Term Incentive Components, by Revenue Range 16 Options Vesting Schedules 17 Stock Vesting Schedules 17 LTIP Performance Metrics 18 STIP Performance Metrics 18 LTIP Performance Periods, by Revenue Range 19 About the Contributors 20 Appendix A 21 Appendix B 23 Appendix C 25 3

4 General Counsel Pay Trends 2016 Executive Summary Executive Summary The role of General Counsel (GC) has seen increased responsibility at public companies in recent years. GCs now play a more integral role in a company s strategic planning, particularly as it pertains to mitigating risks and discovering competitive advantages in the market. As an example, the scope of the GC s responsibility has grown regarding compliance with new SEC regulations. The Sarbanes-Oxley Act (2002) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) hold companies to new governance and disclosure standards, and GCs are frequently on the front lines to ensure appropriate compliance and communication of critical company information. At larger companies, multinational business operations mean that GCs must consider the implications of an increasingly global economy. In addition to ensuring legal compliance domestically across a company s various departments which often involves close communication with other executives and the board GCs for multinational companies are now required to understand complexities in the legal, social and political climates of other regions of operation. In light of these factors, compensation paid to GCs is indicative of their breadth of responsibility and influence on a company s performance, and fittingly, pay levels tend to correlate with company revenue. In 2015, the median total compensation received by GCs at companies with revenues over $15 billion was $2.5 million versus median compensation of $725,021 at companies below $1 billion in revenue. GCs, like most top executives, receive their compensation through cash, bonus and equity vehicles, providing a balance of fixed and at-risk pay to simultaneously promote retention and incentivize performance. General Counsel Pay Trends 2016 details the state of GC compensation in fiscal years 2014 and 2015, and considers trends across multiple categories, including breakdowns by company revenue and industry sector. Drawing from both annual proxy filings and the Equilar Top 25 Survey, the report analyzes a comprehensive sample of more than 1,400 GCs. Overall, median total compensation increased slightly year over year for GCs across all revenue ranges, and the findings provide insight into more nuanced strategies public companies employ to pay their top legal executives. BarkerGilmore Commentary Historically, the GC was a technical expert in the law who relied on law firms to do much of the heavy lifting. However, both the complexity and ethical issues of business deals have heightened due to the dramatic increase in global business expansion over the last 20 years. GCs have thus demonstrated that their in-house legal departments can quickly resolve issues, providing valuable advice to management earlier in the business process, while delivering the counseling at a lower cost than law firms. Editor-in-Chief Dan Marcec Managing Editor Matthew Goforth Contributing Authors Colin Briskman Ivan Kho Design & Layout Mike White Elizabeth Vellutini 2016 Equilar, Inc. The material in this report may not be reproduced or distributed in whole or in part without the written consent of Equilar, Inc. This report provides information of general interest in an abridged manner and is not intended as a substitute for accounting, tax, investment, legal or other professional advice or services. Readers should consult with the appropriate professional(s) before acting on information contained in this report. All data and analysis provided in this report are owned by Equilar, Inc. Reports are complimentary for Equilar subscribers. Non-subscribers may purchase individual reports for $995. For more information, please contact us at info@equilar.com GENERAL COUNSEL PAY TRENDS WEBINAR Join Equilar and BarkerGilmore for a webinar to discuss the increasing responsibilities of top general counsel and how that relates to their compensation. Register Here for Upcoming Webinars: equilar.com/webinars 4

5 General Counsel Pay Trends 2016 Methodology Methodology General Counsel Pay Trends 2016, an Equilar publication, analyzes compensation data for General Counsel (GC) who served the entire fiscal year, including 1,500 individuals for fiscal year 2014 and 1,428 individuals for fiscal year Proxy data was used when available, accounting for 1,196 executives in 2014 and 1,139 in The Equilar Top 25 Survey was used to supplement proxy data and accounted for 304 executives in 2014 and 289 executives in Proxy data was prioritized over survey when both were available for a given company. Collected according to SEC disclosure guidelines, Top 25 Survey data is blended together with proxy data to create the Equilar TrueView methodology, which is featured as the primary data sampling throughout this report. The report includes additional TrueView analysis on S&P 500 companies by industry sector. The S&P 500 was chosen for this analysis to normalize by company size and type, and included a total of 281 companies in 2014 (including 169 from proxy and 112 from Equilar Top 25 Survey) and 266 companies in 2015 (including 164 from proxy and 102 from Equilar Top 25 Survey). GC pay levels, or total direct compensation (TDC), were calculated by summing base salaries paid, incentive awards valued at target and the grant date fair value of equity awards, and excluded pension, deferred compensation and perquisites. Grants of restricted stock and restricted stock units are combined under the stock category. Similarly, stock options and stock-appreciation rights (SARs) are combined under the options category. The narrative portion of this report identifies trends in the compensation of GC executives. BarkerGilmore has offered independent commentary to provide color and context to how companies recruit and compensate their GCs. Key Findings 1. In 2015, median total direct compensation (TDC) for GCs was $725,021 at companies below $1 billion in revenue, $1.2 million at companies with revenues between $1 billion and $5 billion, $1.7 million at companies between $5 billion and $15 billion in revenue and $2.5 million at companies with revenues above $15 billion. 2. For each revenue range, median GC pay increased slightly from 2014 to The S&P 500 healthcare sector paid the highest median TDC of all sectors at $3.0 million, versus $2.1 million for the S&P 500 as a whole. 4. Long-term performance incentives represented the largest pay component at the median for companies above $15 billion in revenue, while base salary was the largest component for GCs at companies in the lower revenue ranges. 5. On average, base salary represented 35.8% of TDC at companies below $1 billion in revenue and 21.9% of TDC at companies above $15 billion in revenue. Conversely, long-term performance incentives were 17.1% of TDC at the smallest companies and 31.3% of TDC at the largest companies. 6. Relative TSR was the most common long-term incentive plan (LTIP) metric for GCs, and revenue was the most common shortterm incentive plan (STIP) metric. These metrics were featured in 28.6% and 29.2% of LTI and STI plans, respectively. 5

6 General Counsel Pay Trends 2016 Section Name Here Total Direct Compensation General Counsel Pay Trends 2016

7 General Counsel Pay Trends 2016 Total Direct Compensation Compensation by Revenue Range General Counsel (GC) total direct compensation (TDC) was generally higher at companies with higher revenues. Grouping companies into four revenue ranges to analyze pay among like companies, it s clear that companies generating more revenue pay higher median TDC. Companies with revenues above $15 billion paid more than three times as much to GCs than companies with revenues below $1 billion. In addition, median GC compensation increased slightly from 2014 to 2015 across each of these four revenue ranges. Figure 1 GC Median Total Direct Compensation, by Revenue Range $2,500 $2,000 $1,500 $1,000 $500 $0 $701.5 $725.0 Less than $1B $1,154.5 Between $1B and $5B $1,183.7 $1,650.0 $1,658.9 Between $5B and $15B $2,366.5 Over $15B $2,458.2 Data Points Year over year, median TDC increased moderately in each revenue range, with the largest increase (3.9%) at companies above $15 billion in revenue the smallest increase (0.5%) was at companies between $5 billion and $15 billion in revenue (Fig. 1) Median compensation increased 6.9% across the entire sample set of GCs in the study, despite being lower for each individual revenue range GCs at companies with revenue below $1 billion were awarded a median $725,021 in 2015, up from $701,529 in 2014 (Fig. 1) Median TDC at companies with revenue between $1 billion and $5 billion was about $1.2 million in 2014 and 2015, and 63.3% higher than those at companies under $1 billion in revenue (Fig. 1) Median TDC at companies with revenue between $5 billion and $15 billion was about $1.7 million in 2015, and 40.1% higher than those at companies with revenue between $1 billion and $5 billion (Fig. 1) GCs at companies over $15 billion in revenue earned a median $2.5 million in 2015, up from $2.4 million in 2014, and 48.2% higher than those at companies with revenue between $5 billion and $15 billion (Fig. 1) Please see Appendix A for a complete breakdown of sample sizes for each revenue range, including the number of companies that reported general counsel pay in proxy statements and those that provided information through the Equilar Top 25 Survey. BarkerGilmore Commentary Both the influence and status of GCs continue to rise as their roles and responsibilities expand. This is reflected in their increased compensation, with a median pay increase of 6.9% overall, inclusive of all GCs in the Equilar study. Additionally, many companies are elevating the title from General Counsel to Chief Legal Officer to reflect their stature on the executive team. In early 2016, BarkerGilmore again partnered with NYSE Governance Services to conduct an annual research project to illuminate trends regarding GC responsibilities. CEOs and board members of NYSE listed companies were asked detailed questions about the current role and future predictions regarding the evolution of the GC position. The results revealed that by the year 2020, 31% of GCs are expected to add the role of Chief Risk Officer and 25% will add Chief Government Relations Officer. This is an increase from 14% and 16% respectively from These new responsibilities are in addition to Corporate Secretary and Chief Compliance Officer, which many GCs hold today. 7

8 General Counsel Pay Trends 2016 Total Direct Compensation GC Compensation in the S&P 500 Equilar also examined GC pay at S&P 500 companies included in the study to normalize company type and size for additional comparisons. Overall, median TDC for GCs of S&P 500 companies increased 2.4% from 2014 to At $2.1 million, median GC pay for the S&P 500 fell between the medians for TDC in the two largest revenue ranges in the study. GC pay also varied within the S&P 500 by industry sector. In 2015, the healthcare sector saw both the largest annual increase in median TDC from 2014, at 32.4%, and the highest GC pay in 2015, at $3.0 million. The technology sector experienced the largest decrease, falling from $2.5 million in 2014 to $2.2 million in 2015, a difference of $323,394. There was a negative relationship between tenure and TDC for GCs at S&P 500 companies. GCs with tenure between five and 10 years had only slightly lower median TDC than those with tenure between one and five years, between $2.1 and $2.2 million at the median for both groups. Among GCs with tenure above 10 years, median TDC was 5.4% lower than for GCs with tenure between one and five years, at just over $2 million. Figure 2 Median Total Direct Compensation, S&P 500 Companies by Sector $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 S&P 500 Basic Materials Consumer Goods Financial Healthcare Industrial Goods Services Technology Utilities 2014 $2,060.6 $2,208.6 $1,956.3 $1,906.3 $2,235.3 $1,709.8 $2,149.4 $2,492.7 $1, $2,109.3 $2,175.9 $2,146.7 $2,065.2 $2,960.5 $1,793.6 $2,185.0 $2,169.3 $1,572.8 Figure 3 Median Total Direct Compensation, S&P 500 Companies by Tenure $2,500 $2,000 $1,500 $1,000 $500 $0 $2,156.7 $2, to 5 Years BarkerGilmore Commentary 5 to 10 Years $2,039.3 Over 10 Years Overlap and transferability of skills for GCs is oftentimes dependent upon industry. For highly regulated industries such as financial services, insurance and healthcare, a clear understanding of the business and regulations is certainly an advantage and typically a firm requirement for candidacy. In most other cases, there is more flexibility, but still a desire to have exposure to a particular industry. That said, the areas in which GCs add most value to the executive team and board are related to corporate governance, compliance, risk management and M&A, with industry experience lower on the list. Clients who relax the requirement for specific industry experience are often rewarded with a larger pool of candidates to select from, and ultimately a leader who brings greater value to the organization. Considering that the primary role of the GC is to be a guardian of the company, the core competencies of sound judgment and integrity are paramount the industry knowledge can be learned. 8

9 General Counsel Pay Trends 2016 Total Direct Compensation Internal Pay Equity A recent SEC rule requiring companies to disclose the ratio of CEO pay to other employees has drawn attention to CEO pay in the context of organizations at large. Shareholders, however, have been paying attention to CEO compensation levels relative to other NEOs for a much longer period. Outsized CEO pay relative to other NEOs could suggest executives are not being paid proportionally to their relative influence on the company s performance, or raise concerns that the CEO s substantial influence on the company s operations increases the challenges associated with CEO succession. Equilar compared the ratio of TDC for CEOs and GCs at each company in the study and took the median for companies within each revenue range. The median ratio of CEO total compensation to that of GCs increased with revenue. At companies with revenue above $15 billion, the pay ratio was 4.3-to-1, while the median ratio at companies with revenue below $1 billion was 2.7-to-1. This trend suggests CEO compensation varies more by company revenue than for GCs. Figure 4 Median Ratio of CEO-to-GC TDC, by Revenue Range 5:1 4:1 4.2:1 4.3:1 3.7:1 3:1 2.7:1 2:1 1:1 0:1 Less than $1B Between $1B and $5B Between $5B and $15B Over $15B BarkerGilmore Commentary Over the past 15 years, the number of companies that consider their GC a member of the executive management team has grown from 55% to 93% today. GCs are increasingly viewed as having similar clout as the CFO, with their role requiring them to navigate complex and ever-changing laws, regulations and public policies. Though senior law firm partners frequently acted as primary counselors to CEOs and boards in the 1990s, today it is rare when the GC does not assume this critical responsibility. 9

10 Pay Components General Counsel Pay Trends 2016

11 General Counsel Pay Trends 2016 Pay Components GCs are compensated through a variety of vehicles, including base salary, annual cash bonuses, time-vesting stock and options, and long-term performance incentives. A balanced mix of pay components ensures that executives are appropriately motivated by both fixed and at-risk compensation. This pay philosophy aims to align executive interests with short- and long-term company performance without promoting excessive risk-taking. Mirroring the trends for median TDC, the median value of each component increased with revenue. Certain pay components varied more across revenue ranges than others. While base salary increased steadily across each revenue range, long-term performance incentives increased much more sharply across each revenue range. Fewer than half of GCs at companies below $1 billion in revenue received performance incentives, resulting in a median value of $0. At companies over $15 billion in revenue, on the other hand, GCs received a median $682,290 in long-term performance incentives, representing the single greatest component of pay. For GCs at companies in revenue ranges below $15 billion, base salary represented the highest median value, followed by annual cash targets and long-term performance incentives. Figure 5 Median GC Pay Components, by Revenue Range Data Points $700 $600 $500 $400 $300 $200 $100 $0 Less than $1B Between $1B and $5B Between $5B and $15B Over $15B Salary $315.9 $400.0 $482.2 $615.7 Annual Cash Bonus Target $116.5 $240.0 $352.0 $522.2 Stock Awards $75.0 $135.1 $149.5 $165.6 Options Awards Performance Incentives $0.0 $0.0 $0.0 $43.9 $0.0 $205.0 $350.1 $682.3 Long-term performance incentives accounted for the largest component of pay for GCs at companies with revenues over $15 billion, at a median $682,290 (Fig. 5) GCs at companies with revenue above $15 billion received 348% more in annual bonus targets than those at companies below $1 billion in revenue, compared to a difference of 94.9% for base salary (Fig. 5) Time-vesting options had a median value above $0 only for GCs at companies above $15 billion in revenue, signaling the larger trend of decreasing options awards in executive pay (Fig. 5) Please see Appendix B for a complete breakdown of pay components for each revenue range as reported in proxy statements and provided through the Equilar Top 25 Survey. Your Executive Pay Survey May Be Costing You Too Much Using Top 5 data alone may provide a relatively small sample size for many executive positions, resulting in a significant bias in pay analyses. Equilar TrueView (ETV) seamlessly integrates high quality, verifiable data from Top 5 proxy data with the large database of the Equilar Top 25 Survey, which includes data for more than 1,300 companies. Combined together using the same SEC disclosure guidelines for proxy data, ETV provides an unrivaled single reliable data source. Learn more: 11

12 General Counsel Pay Trends 2016 Pay Components Average Pay Mix In 2015, not only did companies with higher revenues grant more total compensation to GCs, they also granted a higher proportion of compensation in the form of longterm performance incentives. This higher reliance on performance awards coincided with a lower percentage of compensation in base salary. Data Points GCs at companies with more than $15 billion in revenue received an average of 31.3% and 21.9% of total compensation in the form of longterm performance incentives and base salary, respectively, versus 17.1% performance awards and 35.8% salary at companies with revenue below $1 billion (Fig. 6) GCs at companies below $15 billion in revenue received a majority of total compensation in cash 52.6% for companies below $1 billion and 50.9% for both revenue ranges between $1 billion and $15 billion (Fig. 6) Figure 6 Average Pay Mix, by Revenue Range 100 Performance Incentives Options Awards Less than $1B Between $1B and $5B Between $5B and $15B Over $15B 17.1% 21.4% 27.9% 31.3% 11.1% 10.9% 9.0% 11.3% Stock Awards 19.2% 16.8% 12.2% 15.7% Annual Cash Bonus Target 16.8% 22.0% 22.4% 19.8% Salary 35.8% 28.9% 28.5% 21.9% GCs at companies above $15 billion received 41.7% of TDC in cash on average (Fig. 6) GCs at companies below $1 billion in revenue received the largest percentage of TDC in time-vesting equity (stock and options awards), at 30.3% on average, while those at companies between $5 and $15 billion in revenue received the smallest percentage 21.2% (Fig. 6) 12

13 General Counsel Pay Trends 2016 Pay Components S&P 500 Average Pay Mix Within the S&P 500, the average allocation of GC compensation attributable to each pay component most closely resembled that for companies above $15 billion in revenue. Across the index, 58.0% of median GC pay was awarded in the form of equity and long-term incentives versus 42.0% in annual cash. The average pay mix in the S&P 500 varied by sector. As a percentage of total compensation, healthcare companies awarded more than twice as much in the form of options than the S&P 500 as a whole at 26.3%. The largest pay component for each sector was long-term performance incentives, except at services companies which paid more in annual cash bonus targets (26.4%) and base salary (25.0%) than performance incentives (24.9%) on average. Figure 7 Average Pay Mix, S&P 500 Companies by Sector Performance Incentives Options Awards Stock Awards Annual Cash Bonus Target S&P 500 Basic Materials Consumer Goods Financial Healthcare Industrial Goods Services Technology Utilities 30.9% 31.9% 27.1% 36.4% 30.6% 29.2% 24.9% 35.6% 35.7% 12.3% 13.3% 10.8% 6.7% 26.3% 13.7% 15.6% 4.0% 2.7% 14.8% 14.7% 15.6% 17.5% 10.0% 11.5% 8.1% 29.4% 10.3% 19.1% 18.0% 21.6% 13.9% 14.2% 20.4% 26.4% 14.9% 19.9% Salary 22.9% 22.2% 24.8% 25.4% 18.8% 25.3% 25.0% 16.0% 31.3% BarkerGilmore Commentary Industries experiencing high growth place less emphasis on salary and more emphasis on hitting key performance metrics. Examples of these industries are healthcare and technology. Conversely, industries with lower growth place more emphasis on salary and less on performance metrics. Examples are utilities and financials. Data Points Companies in the S&P 500 financial sector granted the most long-term performance incentives to their GCs, at 36.4% of average total compensation, followed by utilities companies at 35.7% and technology companies at 35.6% (Fig. 7) The services and utilities sectors were the only sectors to grant the majority of average TDC to GCs in cash, at just above 51% in base salary and annual cash target (Fig. 7) Following services companies, at 26.4%, the consumer goods sector awarded the second highest percentage of average TDC in annual cash bonus target 21.6% (Fig. 7) Healthcare companies awarded GCs the largest average mix of time-vesting equity, at 36.4% of TDC, largely attributable to the substantial contribution of options. The only other sector to award over 30% of average TDC in time-vesting equity was in technology (Fig. 7) The healthcare, technology and financial sectors were the only sectors to award GCs over 60% of average TDC in long-term incentives (time-vesting equity and performance incentives), while the services sector awarded the least, at 48.6% (Fig. 7) 13

14 Long-Term Incentives General Counsel Pay Trends 2016

15 General Counsel Pay Trends 2016 Long-Term Incentives Long-term incentive (LTI) awards, consisting of time-vesting equity and performance-based equity and cash, play an important role in executive compensation packages by providing a balance of retention and performance incentives. Time-vesting equity encourages retention by ensuring that executives who remain with their company for the vesting period will realize value from the awards. Performance-based equity and long-term cash awards often carry similar retention incentives, but also align the interests of executives with those of shareholders and the company since awards are contingent on the achievement of specific performance goals. As companies with higher revenues generally granted higher values of both time- and performancevesting equity, total LTI values predictably increased across higher revenue ranges. Companies with revenues above $15 billion granted a median $1.3 million in LTI awards to GCs in 2015, compared to $263,450 at companies with revenues below $1 billion. Figure 8 Median GC Long-Term Incentive Target Values, by Revenue Range $1,500 $1,200 $900 $600 $300 $0 $263.5 Less than $1B Data Points $512.5 Between $1B and $5B $703.7 Between $5B and $15B $1,310.9 Over $15B Companies with revenue over $15 billion offered 628.1% more equity and long-term incentives at the median than companies with revenues below $1 billion (Fig. 8) GCs at companies with revenues above $15 billion received nearly 1.9 times the target value of long-term incentive awards as GCs at companies with revenues between $5 billion and $15 billion in 2015, at a median $1.3 million versus $703,734 (Fig. 8) GCs at companies between $1 billion and $5 billion in revenue received nearly twice the target LTI value as GCs at companies below $1 billion in revenue, at a median $512,518 versus $263,450 (Fig. 8) Please see Appendix C for a comparison of long-term incentives for each revenue range as reported in proxy statements and provided through the Equilar Top 25 Survey. Benchmark with the Best Equilar Insight allows you to create custom reports based on specific criteria, including a defined peer group, industry type and revenue to compare where your executive pay levels rank among your peers. By selecting the TrueView option in the data source menu, you can view how total compensation of executive positions is more accurately depicted by blending both Top 5 proxy data and Top 25 survey data. Learn more: 15

16 General Counsel Pay Trends 2016 Long-Term Incentives In addition to awarding higher median long-term incentives to GCs, companies with higher revenues also generally grant a wider variety of equity vehicles. For example, the prevalence of performance stock increased across each revenue range, with nearly three-quarters of companies above $15 billion granting performance stock to GCs compared to about 43% of companies below $1 billion. Meanwhile, time-vesting options, performance stock and long-term performance cash awards were most common at companies above $15 billion in revenue. Timevesting stock was most prevalent at companies with revenue between $1 billion and $5 billion. Data Points Performance stock was the most popular equity vehicle for companies above $5 billion in revenue, granted by 67.0% of companies between $5 billion and $15 billion in revenue and 73.7% of companies above $15 billion in revenue (Fig. 9) Figure 9 Long-Term Incentive Components, by Revenue Range Stock Time- Vested Options Time-Vested Performance Stock Performance Cash Performance Options Less than $1B Between $1B and $5B Between $5B and $15B Over $15B 64.4% 69.3% 57.6% 54.2% 37.8% 44.7% 42.9% 50.0% 42.7% 63.7% 67.0% 73.7% 5.5% 9.6% 9.4% 11.0% 2.4% 0.8% 3.1% 2.5% Though companies below $1 billion in revenue awarded a median $0 in targeted long-term performance incentives, nearly half, or 48.2%, granted a long-term performance award (stock or cash) to their GCs in 2015 (Fig. 9) Time-vested stock was the most common equity vehicle for all companies below $5 billion in revenue, granted by approximately two-thirds of those companies (Fig. 9) 16

17 General Counsel Pay Trends 2016 Long-Term Incentives Equity Vesting Schedules Time-based LTI equity awards are typically not immediately available to recipients as full-value and unrestricted shares, which could be sold on the open market. These equity awards only become available, or vest, over a specified vesting period. Some equity vests all at once (cliff vesting), while some equity vests incrementally over the vesting period (graded vesting). Graded vesting schedules were much more common than cliff vesting schedules for options granted to GCs in Approximately 93% of options granted had graded vesting schedules, and more than 80% of awards were attached to three- or four-year graded vesting schedules. Four-year graded vesting was most common, at 45.6% of options awards, compared to 38.1% with a three-year graded vesting schedule. Three-year graded vesting schedules are similarly common for stock awards, with 39.9% of stock grants vesting over three years. Four-year graded vesting is also popular for stock awards, and slightly more than one-quarter of stock awards granted in 2015 vested over four years. The difference in prevalence of four-year graded vesting schedules between options and stock awards was largely a result of the frequency of three-year cliff vesting schedules. Nearly 20% of stock grants are scheduled to vest after three years. Figure 10 Options Vesting Schedules Cliff 3 Graded 0.3% 0.5% 0.3% 2.5% 0.8% 4.5% Figure 11 Stock Vesting Schedules Data Points Cliff 19.3% % Graded 39.9% 2.4% 0.6% 0.3% 0.8% 1.1% % 26.2% Four-year vesting periods were most popular for options, linked to 46.4% of those awards, while three-year vesting was also common, at 42.6% (Fig. 10) 0.3% 2.0% Nearly 60% of all stock awards have three-year vesting schedules (Fig. 11) While far less common than three- and four-year vesting periods, five-year vesting was the third-most prevalent period for both stock and option grants (Figs. 11 and 12) % 5.6% 17

18 General Counsel Pay Trends 2016 Long-Term Incentives Measuring GC Performance Companies use performance-based compensation to align executive interests with those of the company and shareholders. The metrics used by companies to determine the payouts of performance awards can provide some insight into a company s primary points of focus and its expectations regarding a GC s ability to influence company success. For performance-based LTI awards granted to GCs in 2015, relative total shareholder return (TSR) was the most commonly featured metric, used by 28.6% of companies granting such awards more than twice the prevalence of any other metric. Earnings per share (EPS) was the only other performance metric used by more than 10% of companies granting long-term performance awards, at 12.5%. Short-term incentive plan (STIP) awards featured a more diverse range of metrics, with seven distinct metrics used by more than 10% of companies. Most common were revenue (29.2%), non-financial metrics such as goals related to leadership, productivity, diversity or strategy (26.8%) and operating income/margin (23.4%). Data Points Return on capital or invested capital (ROC/ROIC) was the third most commonly featured LTIP metric, used by 9.9% of companies granting LTI performance awards (Fig. 12) Figure 12 LTIP Performance Metrics % Relative TSR 12.5% EPS 9.9% 9.7% ROC / ROIC Figure 13 STIP Performance Metrics % 26.8% 23.4% Revenue Revenue Other Op. Income / EBITDA Non-Financial Margin BarkerGilmore Commentary 22.8% 7.8% EBITDA 16.7% EPS 7.0% Op. Income / Margin 15.5% Cash Flow 5.3% Cash Flow 12.6% Industry Specific 3.6% ROE Cost / Cost Ratio A general counsel s worth extends far beyond financial metrics to include the intellectual contributions they make to the executive team and board. The most tangible area in which a GC can influence revenue is through successfully negotiating M&A transactions in a timely manner and with favorable terms. Regarding total shareholder return, GCs have reduced budgets by increasingly bringing work in-house that was traditionally performed by outside law firms. This has reduced legal expenses, shortened turnaround times, and improved overall support to the business team. In addition, since many GCs are responsible for compliance, they have implemented programs which have helped to reduce regulatory and reputational risks. 9.7% Other STIP metrics utilized by more than 20% of companies granting awards were other non-financial (26.8%), operating income/margin (23.4%) and EBITDA (22.8%) (Fig. 13) 18

19 General Counsel Pay Trends 2016 Long-Term Incentives The large majority of companies that granted performance-based LTI awards to GCs utilized a threeyear performance period, and three-year performance awards were particularly common at larger companies. Nearly three-quarters of companies with performancebased LTI awards and revenues below $1 billion used a three-year performance period, versus 88.6% of such companies with revenues above $15 billion. Other performance period lengths were significantly less common, and generally were increasingly rare as company revenue increases. While almost one out of four companies in the lowest revenue range that used a performance-based LTI award featured a performance period less than three years, only 13.6% of the largest revenue companies used a performance period spanning less than three years. Figure 14 LTIP Performance Periods, by Revenue Range 100 <3-Year 3-Year >3-Year % 86.3% 88.6% 72.1% % Less than $1B 9.4% 17.5% 17.3% 5.0% Between $1B and $5B Between $5B and $15B 2.9% 13.6% Over $15B 5.7% Data Points Of companies with revenues below $1 billion that granted a LTI performance award to their GC, only 72.1% featured a three-year performance period, as compared to more than 85% for companies with revenues above $1 billion (Fig. 14) Performance periods both shorter and longer than three years were most prevalent among companies with revenue below $1 billion, at 24.3% and 9.4%, respectively (Fig. 14) Performance periods greater than three years were most prevalent at the smallest (below $1 billion) and largest (above $15 billion) companies by revenue, while less than 3% of companies in the intermediate revenue ranges used performance periods greater than three years (Fig. 14) 19

20 General Counsel Pay Trends 2016 About the Contributors About BarkerGilmore BarkerGilmore is a boutique executive search firm dedicated exclusively to the placement of General Counsel, Chief Compliance Officers and their strategic hires. Our niche concentration affords us access to a specialized network of talent, and we have established the relationships that allow us to identify the best legal professionals for any assignment. We are attentive to each of our client s business culture and understand their brand, strategy and leadership needs. We pride ourselves on being able to provide the highest standard of service and at establishing meaningful and long-lasting relationships with our clients. The hard measures of our operational efficiency keep existing clients returning to the firm and provide our new clients with the peace of mind of knowing the success of their search is inevitable. Our industry leading, audited metrics over the past three years include: a 96% retention rate of placements made, 44% of which are women, 24% ethnically diverse, a 96-day average timeframe to execute a search, and guaranteed results. For more information visit Contact Bob Barker Managing Partner rbarker@barkergilmore.com Bob Barker is a Managing Partner at BarkerGilmore. He brings more than three decades of executive search and international business experience, and has successfully managed General Counsel and Chief Compliance Officer engagements for financial, industrial and consumer companies. Bob is recognized for his expert ability to listen to clients needs and help them achieve their desired goals. He has been instrumental in expanding BarkerGilmore s national network and in providing clients with access to legal and compliance leaders. He is a strong advocate for diversity in the workplace and has been actively involved in in the firm s Women and Diversity Practice. Bob s writing has been published in Corporate Board Member, Corporate Counsel and he has been interviewed by The Wall Street Journal and numerous other media outlets. John Gilmore Managing Partner jgilmore@barkergilmore.com John Gilmore is a Managing Partner at BarkerGilmore. With almost three decades of experience in executive recruiting, he has managed the successful placement of General Counsel and Chief Compliance Officers for Fortune-500 and emerging growth companies. John s searches are guided by his commitment to succession planning. He helps his clients build the strongest and most productive legal departments by taking into consideration a company s current circumstances as well as its future needs. John s unparalleled track record in executive search and assessment led him to develop the CustomFit process, which is employed in every BarkerGilmore search. This innovative tool provides a powerful recruiting and assessment solution, and has resulted in candidate placement and retention rates well above industry average. John is considered an authority in legal and compliance placement and often quoted in the press. His insights have appeared in numerous publications, including The Wall Street Journal, USA Today and Corporate Board Member. 20

21 General Counsel Pay Trends 2016 Appendix A Appendix A GC Total Direct Compensation Figure A1 GC Total Direct Compensation at Companies under $1B in Revenue Executive Count Top 5 Median Compensation (in thousands) $800 $700 $600 $500 Difference Top 5 vs. TrueView $ Top 25 Survey 579 (TrueView) $400 $300 $200 $100 $724 $725 $ Top 5 TrueView Top 25 Survey Figure A2 GC Total Direct Compensation at Companies between $1B and $5B in Revenue Executive Count Top 5 Median Compensation (in millions) $1.5 Difference 400 $1.2 Top 5 vs. TrueView $33, Top 25 Survey 488 (TrueView) $0.9 $0.6 $0.3 $1.2 $1.2 $1.0 0 $0 Top 5 TrueView Top 25 Survey 21

22 General Counsel Pay Trends 2016 Appendix A Figure A3 GC Total Direct Compensation at Companies between $5B and $15B in Revenue Executive Count Top 5 61 Top 25 Survey 191 (TrueView) Median Compensation (in millions) $2.0 $1.5 $1.0 Difference Top 5 vs. TrueView $114, $0.5 $1.8 $1.7 $1.4 0 $0 Top 5 TrueView Top 25 Survey Figure A4 GC Total Direct Compensation at Companies over $15B in Revenue Executive Count Top 5 Median Compensation (in millions) $3.5 Difference Top 25 Survey 118 (TrueView) $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $3.2 $2.5 $2.1 Top 5 vs. TrueView $743,002 0 $0 Top 5 TrueView Top 25 Survey 22

23 General Counsel Pay Trends 2016 Appendix B Appendix B GC Median Pay Components Figure B1 GC Median Pay Components, Top 25 Survey by Revenue Range $800 $700 $600 $500 $400 $300 $200 $100 $0 Less than $1B Between $1B and $5B Between $5B and $15B Over $15B Salary $300.0 $386.2 $450.0 $580.0 Annual Cash Bonus Target $136.7 $245.7 $300.0 $484.3 Stock Awards $76.9 $98.9 $160.0 $34.8 Options Awards Performance Incentives $0.0 $0.0 $0.0 $123.0 $0.0 $150.0 $247.5 $

24 General Counsel Pay Trends 2016 Appendix B Figure B2 GC Median Pay Components, Proxy by Revenue Range $800 $700 $600 $500 $400 $300 $200 $100 $0 Less than $1B Between $1B and $5B Between $5B and $15B Over $15B Salary $316.7 $400.0 $500.0 $650.0 Annual Cash Bonus Target $114.0 $239.7 $390.4 $588.6 Stock Awards $73.4 $149.2 $120.7 $335.1 Options Awards Performance Incentives $0.0 $0.0 $0.0 $0.0 $0.0 $224.9 $419.9 $

25 General Counsel Pay Trends 2016 Appendix C Appendix C GC Long-Term Incentives Figure C1 Median Long-Term Incentive Target Values, by Revenue Range $2,000 Survey TrueView Proxy $1,500 $1,000 $500 $0 Less than $1B Between $1B and $5B Between $5B and $15B Over $15B Survey $278.3 $387.2 $620.0 $1,029.9 TrueView $263.5 $512.5 $703.7 $1,310.9 Proxy $262.5 $545.6 $799.8 $1,

26 General Counsel Pay Trends 2016 Section Name Here Data to Navigate Your Most Important Board Decisions Board Intelligence Solutions Data. Decisions. Results. Board Succession Planning Shareholder Engagement Executive Compensation Director Education Learn more at 26

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