Does More Variable Compensation Prompt More Business Prospecting By General Counsel?

Abstract

Executive compensation researchers ignore a firm’s senior in-house lawyer or general counsel (GC), perhaps because they assume variable compensation like stock awards is irrelevant to executives primarily tasked with regulatory compliance and legal monitoring –gatekeeping-- rather than identifying and exploiting value-creating business opportunities –prospecting. We show otherwise. Difference-in-difference analyses of US firms immediately before and after the sudden and unexpected emergence of patentable “business method” innovations in late 1995 indicate that: 1) firms paying GCs more variable compensation patent more business method innovations; and 2) these positive effects are magnified for GCs with higher status and fewer gatekeeping burdens at firms with more patenting experience. GCs merit attention in executive compensation research when that research investigates business prospecting related to GC legal and regulatory expertise.