What is it like to practice in the area of executive-compensation law?
Welcome to the latest installment of Better Know A Practice Area, a new series introducing readers to different practice areas. Each post is written by an editor at Practical Law who previously practiced in that area and currently writes about it. Prior columns have covered capital markets and corporate governance practice, securities litigation and enforcement, and patent litigation.
Today’s topic: life as an executive-compensation lawyer.
- What do you do in a typical day?
First, it should be noted that all of these responses reflect executive compensation practice at a large law firm in New York. Practices in other areas of the country may vary.
Executive compensation lawyers work on a wide variety of matters, which means there really is no such thing as a typical day. For example, a mid-level associate in this practice area typically is working on several M&A deals, an IPO or two, and some standalone work such as drafting an employment agreement or advising a client on Section 409A or Section 162(m) of the Internal Revenue Code.
Executive compensation practices also involve a good deal of unpredictability. Many days see associates in this practice area working diligently on one matter only to have something more urgent come up – for example, SEC comments on a filing or comments from the other side on a purchase agreement in an M&A deal.
- Who do you work with?
Matters in this practice area tend to be very leanly staffed, so even junior associates often work directly with partners and clients. On M&A deals and IPOs, the executive compensation team typically consists either of one associate and one partner, or of one junior associate, one mid-level or senior associate and one partner. Standalone work is almost always one associate working with one partner. Very junior executive compensation lawyers can have clients calling them directly on a matter. Those clients can either be a member of the in-house legal team or a senior person on the client’s human resources team.
In addition to clients and other executive compensation lawyers, associates in this practice area frequently work with M&A lawyers or capital markets lawyers when working on transactions, with labor & employment lawyers when working on employment agreements (particularly restrictive covenants) and severance agreements, and with tax lawyers when analyzing the tax implications of various compensation arrangements.
- What does a common career path look like?
Most executive compensation lawyers start their careers at large firms where they can get great training and experience. From there, some lawyers choose to move to smaller practices where they may have a more predictable schedule with fewer large transactions. Other associates make the transition to an in-house legal department, often of a client. Some may take a less traditional route, for example, by becoming an attorney editor. Of course some executive compensation lawyers remain at large law firms for their entire careers after becoming counsel or partner.
- If variety is the spice of life, how spicy is this practice area?
Executive compensation is a practice area with a ton of variety. Lawyers in this practice area frequently work on:
- M&A deals (both public and private companies), including due diligence, drafting and reviewing employee-related sections of purchase agreements, advising clients on potential issues in the deal, and negotiating with executive compensation lawyers on the other side.
- IPOs, including assisting in the drafting of the executive compensation section of securities filings, drafting new equity compensation plans and annual bonus plans, and advising clients on public company compensation matters like Section 162(m) of the Internal Revenue Code, Section 16 of the Exchange Act, and corporate governance as it relates to the client’s compensation committee.
- Providing ongoing counsel to public companies following an IPO.
- Negotiating and drafting employment agreements, separation agreements, offer letters and compensation plans.
- Designing and drafting deferred compensation, change in control and equity compensation arrangements.
- Analyzing and advising on various Internal Revenue Code sections, including 409A, 457A 280G, 162(m) and 83.
- How much wear and tear?
The pace and intensity of the work in this practice area can be demanding. While executive compensation associates tend to have more even workloads and fewer all-nighters than M&A associates, attorneys in this practice area typically are working on multiple deals and multiple standalone matters. This means that an executive compensation lawyer may have an intense period leading up to signing a big deal, but immediately after signing moves on to other urgent matters rather than having a slower period. However, because a significant portion of work in this practice area relates to M&A deals and IPOs, things tend to slow down considerably when the M&A and IPO markets are slow.
- Of the people in this practice group who hate it, what exactly do they hate about it?
People may dislike this practice area for a couple of reasons. Some associates dislike the unpredictability of transactions. Others dislike the fact that executive compensation lawyers aren’t running deals or the fact that executive compensation issues are not always the issues clients care most about. On a deal, lawyers in this practice area have two clients in a sense – the internal client, which is the M&A or capital markets team, and then the external client. On the other hand, some associates may enjoy deals and their role in them, but dislike the standalone work and the complex tax analysis that can be present in this practice area.
- Of the people in this practice group who love it, what exactly do they love about it?
Most lawyers who love this practice area enjoy the variety of the work and the intellectual challenge of coming up with creative solutions to clients’ problems. Many enjoy the excitement of deals as well as the more academic aspect of analyzing tax issues. Lawyers in this practice area also love being long-term advisors to clients.
- Are there common avenues out of this practice area?
There are not many avenues out of the executive compensation practice area. If a junior associate dislikes practicing in the area, the best way out is probably to try to switch to a different practice area very early on, either in the same firm or in a different firm. Some executive compensation lawyers have success leaving the practice area by going in-house and transitioning to more of a corporate governance legal role or, less commonly, transitioning to the “business side,” which for an executive compensation lawyer is typically in the human resources department.
- What are some market trends that impact this practice area?
At large law firms, executive compensation practices tend to be very transaction-focused, so the general level of mergers and acquisitions and IPOs most significantly affects the practice area.
General economic trends can also affect the practice area. In a recession, companies often aim to do more legal work in-house, which can reduce the standalone executive compensation work done by law firms.
In addition, the tax and securities laws governing executive compensation and related proxy disclosure, and the views of large institutional shareholders, often change in response to public opinion and shareholder advisory firms disfavoring big paydays for executives. Changes in these laws typically increase an executive compensation lawyer’s workload by providing more opportunities to counsel clients on their compensation plans and programs and, for public company clients, on the requirements of their proxy disclosure.
- If you had to recommend one candidate from a room crowded with recent bar exam graduates, what specific qualities would he or she have that would ensure success in this practice area?
A sincere interest in the practice area is a great start – many executive compensation lawyers fall into the practice area by chance. It would also be useful for a candidate to have taken some tax law classes. The other qualities that a good candidate should possess are likely similar to the qualities a person needs to succeed as a lawyer in just about any practice area:
- The skill to explain complex issues clearly and concisely to a client.
- Willingness to ask questions of and learn from more senior lawyers.
- Good business sense – an understanding of what’s important to the client and what is not.
- Ability to juggle multiple matters, supervisors and clients.
- Ability to advise and counsel clients on the best actions to take in a given situation.
- General responsiveness when the client seeks counsel.