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In house conusel's have better chances to receive stock options as part of compensation package

published July 03, 2006

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( 119 votes, average: 5 out of 5)
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<<Stock options are very much a part of an attorney's compensation package, albeit more common for an in-house counsel than for a law firm associate. According to a study, about 15-20 percent of all publicly traded companies offer stock options to their employees, and many of these are outside the technology sector. It is for this reason that attorneys working in-house in publicly traded companies usually get stock options, although those working at some very large law firms and corporations get them too.

This leads us to the second question. Do only publicly traded companies offer stock options? Well, public companies certainly offer them, but they are not the only ones to do so. Small, privately held companies also offer stock options; the gain materializes when large companies buy them out or when they go public.


As mentioned previously, attorneys do not have to give up a part of their salary for taking stock options. A 2005 Altman Weil study reveals that public companies now offer salaries that compete with those of law firms. With actions of corporations and issues of their compliance with the Sarbanes-Oxley Act increasingly coming under the microscope, companies now offer higher salaries to in-house attorneys—the increase ranging from 4-6.5 percent, depending on the level of seniority. Stock options are usually offered in addition to salaries. Depending on the financial health of the company, this significantly hoists an attorney's compensation package. What this translates into is a careful analysis of a compensation package that comprises salary, vacation time, 401(k), and stock options.

So, what exactly is a stock option? In the simplest form, it gives an employee the right to buy non-transferable shares of the company at a predetermined price, called the strike or the grant price, for a fixed period. This price can be the market price or a lower price. In the case of a privately held company, it is a price fixed at the internal value of the share and agreed upon by the company's board of directors through a vote. The employee can hold on to these shares and exercise them after a fixed period at the prevailing market rates. For a company that is performing well, this market rate would be higher. The difference between the grant price and the exercise price, called the spread, represents the profit for an employee.

The wild growth of some companies in the last decade led to windfall profits in stock options. In the late 1990s, there were cases in which in-house attorneys exercised stock options worth billions of dollars. Such meteoric gains were, however, few and far between. Does this mean that the era of stock options is over? Certainly not. After dizzying heights, stock prices have steadied and are now closer to their fair value. In the long run, stocks still offer a better rate of return compared to other investments (such as bonds). This sentiment is reflected in a rise in stock prices in the long term, so that when one exercises one's stock option, one can make a nice sum of money. The Altman Weil study found that values of stock options had fallen sharply two years back, but have again jumped back to high levels. In 2005, option values at the Chief Legal Officer level had leapt 43.6% to $888,600 (median), and option values at Division General Counsel level were up 14.5% to $284,400.

Therefore, we can conclude that stock options, if chosen wisely, can yield substantial profits above and beyond salary. The trick lies in choosing the right company—a difficult task!

published July 03, 2006

( 119 votes, average: 5 out of 5)
What do you think about this article? Rate it using the stars above and let us know what you think in the comments below.