Meet The Superlawyer Who Makes Ceos RichElizabeth Lesly
What do IBM's Lou Gerstner, Eastman Kodak's George Fisher, Westinghouse Electric's Michael Jordan, and AlliedSignal's Larry Bossidy have in common--besides, that is, their corner offices and jaw-dropping pay packages? They all owe those big salaries and rich perquisites to the negotiating ability of Joseph E.
The 61-year-old Manhattan lawyer is a celebrity in executive suites these days. Thanks to a banner year, in which he represented Gerstner and 74 other executives, word of Bachelder's prodigious skill has spread, establishing him as a significant behind-the-scenes presence in Corporate America. "Everybody knows about Joe at a certain level in business," says one client. "He's become quite the person to go to for this sort of thing."
And what sort of thing would that be, exactly? Bachelder got that client, the chief executive of a well-known company, an extra year of employment guarantees and secured $1 million worth of stock options as well. "There is no one else in his league," the happy CEO says. And despite fees that can top $100,000, Bachelder is in such demand that he turns away about a third of those who try to hire him.
"AMBULANCE-CHASING." Few outside the upper echelons of business have ever heard of Bachelder, but he has succeeded in establishing stratospheric executive-pay standards. And that has placed him at the center of the debate over excessive pay. "The nation's bellwether companies look to [his deals] as the reference point," says Michael Davis, who runs the compensation practice of Towers Perrin. Bachelder hasn't single-handedly caused the recent steep rise in pay, of course--but he has helped fuel it.
Bachelder didn't start out to be an agent for the corporate elite. A Harvard-trained tax lawyer, he was retained by McKinsey & Co. in 1971, after President Nixon imposed a pay freeze to battle inflation. The freeze played havoc with McKinsey's compensation practice. After finding a way around the rule, Bachelder decided to stick with his new specialty. By 1982, he had hung out his shingle.
Times haven't always been so cushy for Bachelder. He sparked outrage in 1989, when the recession slowed his business. He tried to drum up clients by sending unsolicited letters to more than 100 CEOs of large corporations. In the letters, Bachelder suggested the recipients were underpaid and introduced himself as an expert pay negotiator, according to those who saw copies. "This was ambulance-chasing raised to a high art," says Graef Crystal, an executive-pay expert. "Ever since then, I've been very much on guard about Mr. Bachelder." Somewhat sheepishly, Bachelder acknowledges sending the letters but says no business ever came of them.
TELLTALE SIGNS. Nowadays, most top executives are familiar with Bachelder's talents. With his avuncular manner and pleasant negotiating style, he is no table-pounding prima donna. "What he does is remove all doubt, all clouds, all wondering about exactly what is at stake, and he immediately gains the trust of both sides," says headhunter Gerard R. Roche, who began working with Bachelder more than a decade ago. It also doesn't hurt that Bachelder has a peerless command of tax, compensation, and estate-planning issues, say colleagues.
Those skills have made for pretty juicy client deals. Indeed, Bachelder is known for obtaining relatively risk-free contracts, with high salaries and guaranteed bonuses not tied to performance. His deals also often include rich buyouts of previous-employer benefits, and large stock-option grants.
Take the package Bachelder designed for Gerstner, who joined IBM last April. On top of a $2 million salary, IBM paid Gerstner $5 million to ease the pain of leaving behind a rich package of benefits at RJR Nabisco Inc.--which also happened to be Bachelder-negotiated. Included as well were options on 500,000 shares--worth about $8.7 million--and a guaranteed bonus of at least $1.5 million. To render the package even more risk-free, IBM guaranteed that Gerstner would see a net gain of at least $9.9 million when he exercised his RJR Nabisco options. Then, IBM picked up Bachel-der's tab for negotiating the deal for Gerstner, a common practice.
IBM declines to comment on its negotiations with Bachelder, as do other companies that deal with him. But consultants who represent corporations decry Bachelder deals for what they see as the lack of emphasis on performance. "I can always spot the telltale signs of Bachelder [in a package]," fumes a compensation expert. "The payoff for failure is almost as much as for succeeding."
Bachelder offers no apologies. No one is forcing companies to fork over tens of millions of dollars in salary, bonus, and options to his clients, he argues. "These executives have extraordinary impact on the performance of our economy. They have a bargaining position which results in the compensation levels that we have today." Moreover, Bachelder says, they deserve the money, since business can be less intellectually stimulating and more time-consuming than the work of, say, a low-paid history professor. "Much of what executives do is not personally satisfying," he maintains. And companies evidently don't hold any grudges: He represented 35 corporations last year in compensation matters.
Still, Bachelder says it may be getting harder to stretch the limits of executive pay, now that regulators are taking action. On Jan. 1, 1994, the tax law was changed so that companies can no longer deduct nonperformance-related pay of more than $1 million a year. On top of that, beginning in 1997, the Financial Accounting Standards Board wants companies to deduct the value of stock options from their earnings. But that doesn't worry Bachelder. He is already hard at work finding new and more creative ways to win richer deals for his clients. Roadblocks mean only more work for the executive elite's favorite lawyer.
BACHELDER'S HAPPY CLIENTS LOU GERSTNER
On top of $5 million to replace lost RJR perks, Gerstner gets a $2 million annual salary, a $1.5 million bonus, guaranteed gains on unexercised RJR options of at least $9.9 million, and options on IBM stock valued at about $8.7 million.
Westinghouse Electric paid new boss $400,000 signing bonus, plus base annual salary of $1 million through 2001. Former PepsiCo executive is guaranteed a 1994 bonus of at least $300,000 and options, currently valued at about $5 million.
Eastman Kodak CEO's stock-option package is valued at about $13.1 million. Former Motorola chairman also gets 20,000 shares of restricted stock, valued at about $1.3 million, but must stay at Kodak until 1997 to collect. Annual salary, bonus, signing premium not yet divulged.
Five-year deal with AlliedSignal signed in 1991 includes $1.1 million annual salary, plus $375,000 for lost GE perks and $1.3 million bonus in 1992. Also received 345,798 restricted Allied units, convertible into cash or stock, and options now worth $7.9 million.