(FORTUNE Magazine) – There was a time, the story goes, back in the 1940s, when pretty much the entire high-level executive-search business was handled by two guys, Zip Reilly (of McKinsey) and Bill Clark, working from big leather armchairs in the mezzanine lounge of New York City's Yale Club. Different world. According to one recent study, between 1992 and 1996 outsiders claimed 80 CEO jobs at America's 1,000 largest public companies. All that turnover, the momentum building since the late 1970s, has spawned a vast army of corporate headhunters while also giving rise to a new specialist: the CEO agent. Today that profession, like headhunting half a century ago, is dominated by a handful of elite practitioners, none more sought after by CEOs on the move--and the companies that covet them--than Joe Bachelder.

It was Bachelder who negotiated Lou Gerstner's contract at RJR Nabisco when he left American Express; Bachelder again when Gerstner left RJR for IBM; and Bachelder one more time when Gerstner signed a five-year extension last fall. Bachelder went to bat for Larry Bossidy when he jumped from GE to AlliedSignal, for George Fisher when he left Motorola for Kodak, and for Michael H. Jordan, formerly of Pepsi, when he joined Westinghouse (now CBS).

Bachelder has a long, complex history with AT&T, sitting on both sides of the table. He represented former AT&T president Alex Mandl when he quit to run Teligent (for a $20 million signing bonus), and served as co-counsel (with another leading CEO agent, Chicago attorney Robert J. Stucker) for John Walter, Mandl's replacement, who stayed only nine months but left with millions (more about that later). Last fall Bachelder switched flags and advised AT&T's board after it tapped Michael Armstrong to succeed Robert Allen as chairman and CEO.

Bachelder helped invent equity compensation, which was supposed to link pay to performance once and for all but instead, by piling lucrative stock options atop an ever-rising base, ushered in the era of the low-risk, high-reward CEO megacontract. Witness Bachelder's client Fisher, whose salary, bonus, and realized option gains came to $15.2 million in 1997--a year in which Kodak's sales dropped 8% and profits, after a $1.5 billion charge, totaled merely $5 million.

Graef Crystal, editor of the Crystal Report, which tracks CEO pay, calls deals like that "golden-condom pay packages--protect the executives and screw the shareholders." (Crystal, it should be noted, designed for Disney the infamous $70 million severance given to Michael Ovitz.) "No malice, really," says Crystal. "That's what he's paid to do. He would say to me, and rightfully so, 'You should be aiming your venom at those boards of directors.' Because if they had any cojones, they would tell Bachelder to shove it."

But that almost never happens, and therein lies a clue to comprehending both the rarefied realm in which Bachelder operates and his special role inside it. Understand, these are not truly adversarial proceedings. By the time Bachelder gets involved, the headhunters have finished their work, the directors have made up their minds, the candidate is willing, and it's up to Bachelder to close the deal. It almost doesn't matter which side he's on, since both sides want the same thing: a deal that will be "perceived," says Bachelder, "as being a fair and reasonable compensation package." (Almost always, even when he's retained directly by the candidate, it's the company that pays his $650 hourly fee.)

Cozy? Absolutely. Harmful to shareholders? Sometimes. Unethical? Not according to Stephen Gillers, professor of legal ethics at the New York University School of Law. "I'm not surprised if Bachelder, having done this for a while, concludes that there is a strong overlap between the interests of applicants and the interests of boards," says Gillers. "They have to work together. And Bachelder may come to see himself as a lawyer for the situation, in Justice Brandeis' phrase, where he serves either client best by advocating for the package that will work best for the two of them as a unit."

Bachelder, 65, rose from his native Missouri through Yale and Harvard Law to Mudge Rose (Nixon's old law firm), then to McKinsey as a consultant, then back to the law, arriving in time at a 29th-floor office in midtown Manhattan, home to the six-lawyer firm that bears his name. His life took a big turn August 14, 1971, the day President Nixon froze wages and prices. A tax specialist at the time, Bachelder spent the next several months in Washington advising the government pay board--as an inflation fighter--from which he embarked on a new career as a uniquely trained compensation expert, acquiring in time an unmatched reputation for making CEOs rich beyond their wildest dreams.

At the heart of every Bachelder deal is a commitment to making the job-switcher whole. Make-whole is an absolute, never compromised. Consider the short, strange roundtrip of Sprint's Ron LeMay. It was Bachelder, advising Waste Management, who designed the lure that snagged LeMay as Waste Management's CEO last summer. Sprint had just given LeMay a one-million-share option grant, contingent on his staying put. "I said, 'If you really want to get him, don't give him any more WMX options, give him Sprint,' " Bachelder recalls. "LeMay bought it. So we gave him a million SARs"--stock appreciation rights--"on Sprint. All it did was get him to say, 'Hey, that sounds good, that's gonna keep me whole.' " Alas, it failed to bind LeMay to the fate of his new employer. Four months later, dismayed by the wreckage he found at Waste Management, LeMay tore up the contract and hustled back to Sprint. "One of my greatest successes and my greatest failures," says Bachelder.

Among Bachelder's early high-profile clients was Midland Bank, owner of Crocker National Bank, in its negotiations with Crocker's incoming chairman and CEO Frank Cahouet. Of that experience Bachelder recalls most vividly the phone booth at Caneel Bay, St. John, U.S. Virgin Islands, where he spent 12 un-air-conditioned hours (his wife bringing him meals), and the language inserted at Cahouet's behest assuring that if he didn't ascend to chairman of Crocker's bank holding company on schedule, he was free to leave without forfeiting his severance. Cahouet's eventual promotion rendered the clause moot (he later moved on to Mellon Bank), but Bachelder filed it away for future reference.

Twelve years later, in 1996, Bachelder was called in by the Chicago law firm of Vedder Price Kaufman & Kammholz to consult on a contract for a client identified to him only as the incoming president of AT&T. "Very inadequate definition of good reason," Bachelder scribbled in the margins of the draft next to a paragraph dealing with termination contingencies. "What if AT&T fails to make him chairman and CEO by specific date?"

"So I was the bank robber!" says Bachelder, coming to the part in his story when John Walter, upon losing the support of AT&T's board last summer, quit and walked away with $25 million.

But it doesn't end there. A short time later, Bachelder got a call from Walter Elisha--chairman and CEO of Springs Industries and head of the AT&T board's search committee--requesting a meeting. Both were vacationing on Nantucket at the time, so they met at the nearby Siasconset Market and took their coffees to a park bench. The board was looking for another new CEO, Elisha explained. Would Bachelder advise AT&T this time?

Bachelder was flattered ("It was kind of nice to have AT&T wanting me to represent them"), but there were complications. As Elisha well knew, Bachelder had for a time represented Armstrong, AT&T's leading candidate, when he went to Hughes Electronics. Bachelder told Elisha he would have to check with Armstrong first.

Bachelder says now that he called Armstrong three times but didn't hear back for two months (Armstrong wouldn't comment). By then, Bachelder was already representing AT&T. Armstrong was "disappointed, but he understood," says Bachelder, who referred him to an old friend, Sam Butler, presiding partner of Cravath Swaine & Moore. In the end, Bachelder and Butler worked out a six-year pact that guarantees Armstrong $2.8 million in 1998, plus long-term equity awards with a present value of $33 million.

If you happen to be an AT&T operator, you might object to a handful of powerful white guys in suits, who all seem to know each other, working out such a nice arrangement for one of their own. Even some powerful white guys in suits object, albeit anonymously. "There is something to be said for the fact that most boards are composed of CEOs of other companies, and it is not lost on them, even though it may be only in their unconscious, that if they pay generously, maybe that will rub off on them," says a person involved in the Armstrong deal.

And yet. On the day before Armstrong's hiring was announced, AT&T closed at $45. A little over six months later, on April 30, 1998, it closed at $60. That's a 33% bump, folks--$24 billion of newfound shareholder wealth--traceable in a short, straight line to the arrival of Armstrong. If you're a shareholder, what's to cry about?

Now, sure, for every AT&T there's also a Kodak, but that's not the point. All anyone can know going in is what's at stake. "When Michael Jordan [basketball's, not broadcasting's] has a big year, he makes tens of millions for the owner of the Bulls," says Bachelder. "When a CEO like Lou Gerstner has a good year, he makes billions. That's why boards pay attention, and pay up. Their Michael Jordans are going to make billions, they hope."

Will it ever end?

Bachelder just laughs. "We obviously have not seen the limit."