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In-House vs. Large Law Firm Compensation – A Closer Look

The compensation level for lawyers practicing in in-house legal departments may (and frequently does) differ from the compensation of lawyers in large law firms. With some exceptions, lawyers often take a step back in base salary when going from a large firm to a corporate in-house legal department.

 

Salaries for lawyers in large firms are notoriously high—for example, fresh out of law school, a first year associate’s starting base salary can range from $145,000 to $160,000 (depending on geographic location). In contrast, a mid- to senior-level in-house lawyer with many years of experience may make the same base salary.

 

In light of this, one may ask oneself, why on earth would a lawyer ever go in-house? Well, there are many reasons – work-life balance, predictability of hours, no billable hours, career track, etc. However, it’s also important to note that, in addition to base salary, there are “other” components of an in-house lawyer’s compensation package that a lawyer in a law firm may not have. These other components increase the overall compensation package making it much more attractive than at first glance.

 

Target Annual Bonus

 

Most companies offer their in-house lawyers an annual target bonus that is generally based on some formula of company and personal performance. These annual bonuses are typically not lockstep or based on billable hours, as is the case with most law firms. The sizes of the bonuses for in-house lawyers vary but we have frequently seen 20-30% of base salary as the targeted goal. In some instances, in-house bonuses can be substantially higher, particularly in cases of exceptional personal and/or company performance; however, that’s not the norm.

 

Equity or Phantom Stock

 

With the exception of law firm equity partners, law firms do not generally pay their lawyers any equity. However, many in-house lawyers receive some form of equity as part of their compensation package. In publicly traded companies, this is often in the form of restricted stock or stock options. Alternatively, phantom stock may be issued as a cash incentive without the actual grant of equity.

 

Pension Plan (or other Defined Benefit Plan)

 

Although some companies have eliminated them, many companies still offer pension plans (or other types of defined benefit plan) to their employees. If so, this represents another significant form of compensation for in-house lawyers because the company is making contributions toward a pool of funds set aside for their future retirement. Unlike a 401K, the employee does not have to make any contributions from their own paycheck. The annual contribution by the employer on the employee’s behalf may range as high as 5% of the in-house lawyer’s salary. Virtually no law firms offer employees a pension plan or other defined benefit plan.

 

401K

 

While many law firms offer employees a 401K retirement plan, very few offer any significant match on the employee’s contribution. Conversely, the norm for many companies is to provide a dollar-for-dollar matching contribution ranging from 6-8% of the employee’s base salary.

 

Cost of insurance benefits

 

Law firm lawyers frequently bemoan the high cost of their insurance premiums for coverage under their firm’s healthcare plan. The cost of premiums borne by employees at large corporations is often less, hence reducing an in-house lawyer’s out-of-pocket expense for insurance and allowing them to retain more of their paycheck. This may be a result of more competitive insurance pricing for larger employers or a case where companies simply shift less of the burden to their employees.

 

These are just a handful of differences in compensation between in-house lawyers and large law firm lawyers that we have observed over the years while recruiting. It’s important for lawyers who are considering going in-house to factor in all the monetary components of an in-house package, rather than base salary alone. The differences can add up to be quite substantial.