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GC compensation and legal team cost per hour as pointers toward value of law departments

Could the compensation of general counsel, relative to their function peers such as the CFO, HR head, and CIO, give a clue to the relative value ascribed to law departments? In any specific company, not necessarily, because SVPs and EVPs arrived at different times, with different levels of experience, and different employment contracts. Overall, however, were there comparative metrics within industries, we might use this as a proxy of the relative internal value of a law department.

More broadly, the fully loaded cost per employee within the staff functions tilts heavily toward the law department. Law departments have relatively little leverage – one lawyer for every non-lawyer – and lawyers receive relatively high salaries and bonuses. If the investment in human capital by companies tells us what they value, then the higher investment in legal staff may complement the value ascribed to in-house legal teams through the pay of their leader.

These two indicators of value – leader pay and department costs — came to me when I read in Eduardo Porter, The Price of Everything: Solving the mystery of why we pay what we do (Portfolio/Penguin 2011) at 120, that “the sixfold rise in the pay of chief executives officers in the United States between 1980 and 2003 was due entirely to the sixfold rise in the market size of large American companies.” Revenue growth, not increased worth brought to the table, drove CEO pay. Lawyer pay may track revenue growth, to a degree, but implicit or explicit relative perceptions of value delivered might account for more.