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Pay increases as law departments grow, but total legal spending declines

Data from InsideCounsel, March 2008 at 56, shows that the larger the company the more the general counsel is paid. For example, in companies with $3 to $10 billion in revenues, median total cash compensation for the top lawyer stands at $470,000, while in companies with more then $10 billion in revenues, the pay packet hits $740,000.

Comparable sharp rises in cash compensation as companies are larger show up at other levels of lawyers. Since compensation accounts for such a large portion of a law department’s internal budget (See my post of Dec. 10, 2007.) you might think that total legal spending as a percentage of revenue would increase as companies grow. Not true, as I have pointed out (See my posts of Feb. 6, 2008: total legal spending declines as a proportion of revenue as revenue increases; and Feb. 17, 2008 #1: more metrics.). .).

It’s as if bigger companies, and their correspondingly bigger law departments, are more able than smaller law departments to winnow out the less productive lawyers. Small law departments have to make do, so to speak, with the lawyers they can hire and keep, whereas bigger law departments have more room to maneuver in terms of personnel. In short, they can pay more for fewer but better lawyers and thereby still enjoy the cost reductions of scale.

A hypothesis, only a hypothesis (See my post of March 4, 2008: industry profitability and compensation.).