Negotiating your Executive Employment Agreement

Thinking about taking that new job? Before you do, make sure that you understand your relationship with your new employer. If there is one thing I have hear more and more in this tough economy, it is that people, even at the most senior levels, feel that they just were not on the same page as their employer in a number of key areas. One effective ways to better understand the employee/employer relationship is through an employment contract. It is important to recognize that your ability to get the best terms in a contract is directly related to how desirable and scares your skill set is relative to an employer’s needs. That being said, you should always strive to maximize your position relative to the leverage you have with an employer. Here are some highlights from our last career management session that sheds some light on how to do this.

To Be or Not To Be… Under Contract

Although there are some real clear benefits to having a contract for an employee, keep in mind your contract goes both ways.  The pros of an agreement are that it can give you a concise summary of the terms of your employment so as to avoid any misunderstanding. It also binds your employer to whatever terms are set forth in the contract and generally (but not always) contracts provide some level of long-term protection and security for employees.  On the flip side, this very same contract bind you the employee. Depending on what is agreed to, it could invite a potential breach of the contract, which could lead to damages against you. If the contract has a term, an employer may be able to prevent you from working during that term of the agreement so make sure you clearly understand your obligations in any agreement.

What are you being hired for?… Put it down in writing

An area which is often glossed over and which is probably the most crucial area relative to your long-term happiness in a job is the description of your duties. An employer will often put your title; position and some general catchall phrases into your contract. I would encourage you not to stop there.  Flesh out your real duties in a job description. Make sure your responsibilities are clearly outlined. This is as important to employer as it is to you, so it is unlikely you will get any objection around building out this section of your contract.  A little extra time here prevents you from being one of the folks who three months into a jobs say ” This job is really different than I thought it would be.”

Your term.  Do you have one or are you “at will”?

When going into a new role it can be benefit ional to both you and your employer to have set time frame or term in your contract, which can be renewed at the end of the term. This is particularly attractive to employers the more unique and specific your skill sets. If you feel your skill sets warrant it you should push to get a term. If you set a term make sure it automatically roles over and you are not exposed at the renewal time to termination without any negotiated benefits. If you do not have the leverage or do not desire a specific term your term can be for no specified term or “at will”. An “at will” employee can be terminated by either party with or without notice or cause. In a tough economy many people find out just how at will they are. Keep in mind that “at will” employees can still be entitled to severance if they have a provision in their agreement and likewise a employee with a specific term may not be entitled to severance if there is specific language in their agreement.  You must pay special attention to the termination language in your contract.
Termination.  It will never happen, but just in case…

Regardless of your term you should always clearly define both the reasons and the benefits you receive upon different types of termination.  Here are some things to think about:

Termination for cause: This section of an agreement allows the employer to terminate regardless of term if an employee does specific things. “Cause” usually encompasses things like illegal conduct, failure to perform duties, incompetent performance of duties and insubordinations. It is important what ever is agreed to that it is clearly defined. The more leverage you have, the more limited a definition you will be able to negotiate. In an ideal scenario you would just have illegal conduct outlined as “cause”. If you cannot get everything you want in terms of the definition you may want to ask to have a notice period with time to cure any deficiency. Typically a termination for cause would not grant an employee any severance rights.

Termination for good reason:  This is the parallel for the employee to “cause”. Like cause it should be clearly defined. Typically an employee can terminate for reasons such as a change in title, job duties, reporting structure, salary, and job location.  If you have the leverage to include this in your agreement, make sure that by enacting this terms you get the full benefit of any severance that you would have received for a termination without cause.

Termination for death: It’s probably not debatable that you’ll not be working after you die, but if you have a severance clause, you should ask to have this paid to your family if you die while employed. This is often overlooked and not a big expense to employers if they do it through an insurance policy.

Termination for disability: You should define disability and your coverage.

Termination for reasons other than death, disability or cause:  An employer may want to terminate your emplacement even if you have a term in your agreement. If you have a term this would be a “without cause” termination. Make sure this allows you to get the full benefits of any negotiated severance.  Sometimes employers will put a notice period for 30 or 60 days, which allow them to be release from the contract. Make sure you understand the consequence in these types of situations and the effect they may have on severance payouts.

Severance… Breaking up can be hard, but service can make it feel all right

Both employees with specific terms and “At Will” employees can and should have severance provision in their agreement. Again the extent of these terms will depend on you leverage. In thinking about severance people often just focus on their base pay. One word of advice is to think of your entire compensation package… Base pay, bonus, stock and benefits.  If you have agreed on six month of base pay perhaps you should negotiate for six months of bonus pay as well and maybe six months of benefits (health, life…). In looking at stock plans it is not uncommon for options to vest immediately upon termination. If you have a multi year contract, don’t think just in terms of one year for severance pay out. If you have the leverage you should ask for the remaining term of your contract if it is great that the time period proposed. In all cases strive to make your severance is triggered in all cases of termination other than cause.

Compensation… If it’s not there it’s probably not there.

Compensation is probably the area where there are most often misunderstandings. All forms of compensation should be clearly defined in your contract including signing bonus, relocation expenses, pre-term compensation, wages, salary, commissions, cash incentive plans, retirement plans, savings planes, and stock.

Common areas of misunderstanding are in bonus and stock option plans.  If a large part of you compensation is determined on bonus or commissions you would be served well to at the very least have defined milestones in your agreement that trigger specific payouts or perhaps even attach the entire bonus plan.  Additionally, if there is not a defined stock option plan with in the company you are entering, but you will be eligible once it is defined, either push for definition if you have the leverage, or don’t work this into your value equation.

Other things to think about are for your base salary to negotiate a CPI increases and a term that says your employer cannot lower your salary. As for medical, vacation and insurance benefits, you should make sure that you get the same level of benefit that everyone else at your level gets. Additionally, you should try to get your benefits extended for a specific term should you be terminated.
Competing in California

During our session we had a lot of questions on competition in the state of California.  Non-competition covenant in employment agreements are enforceable during the term of an agreement. The are also enforceable if you are using trade secrets to compete. Otherwise convents to compete are unenforceable in the state of California.

The Best Advice:

Hopefully this summary has given you a taste of some of the things you should think through as you are negotiating your agreement. If you are negotiating any agreement keep in mind the companies internal council IS NOT YOUR ATTORNEY and you should avoid taking direction from them. If you find your self in the position of negotiating a contract on the way into an organization or on the way the best advice I can give you is to hire your own attorney. The cost relative to the downside is minimal.