Executive Employment Agreements: What to Look For Before You Sign
Before you sign that executive employment agreement, do you know what’s in that contract? Whether it’s your first time signing this type of agreement or your dozenth, people don’t always give them much thought.
However, these documents aren’t firm contracts. In many cases, you have an opportunity to negotiate the terms and conditions of your contract. Moreover, these terms cover far more than just compensation.
Your company has a lawyer advocating for their best interests. Shouldn’t you? With executive representation, you have an advocate in your corner to ensure your executive agreement meets your needs.
Negotiating Executive Employment Agreements
For many employees, they jump through hoops just to get a job. So, when it comes time to sign an agreement, they don’t think about it too much. Executives, on the other hand, are in a better position to bargain and change the terms of executive employment agreements.
Before doing so, it’s important to understand the leverage you have in your favor and the leverage the company might have against you.
- Are you easily replaceable in your field?
- Can other people do the job you’re signing for?
- What experience and expertise do you bring to the company?
When you understand the answers to these questions, you have a better sense of your position. Based on this, you can pick and choose your priorities for what you want to see in your contract.
Oftentimes, the highest priority on both sides is the total compensation package. However, there are plenty of other terms to think about as you enter negotiations. For example, does the contract include a non-compete agreement?
If the situation with this employer isn’t ideal, this agreement locks you into a situation where you cannot easily transition to a new company. In some cases, companies do this to lock in executives at a lower salary. Sometimes, they simply have concerns about trade secrets.
In either case, it’s a term of executive employment agreements to consider heavily. If you negotiate more favorable non-compete terms, it allows you to re-negotiate later with offers from competitors.
If you have an employment attorney on your side, you have someone to help you build a stronger case and pursue your best interests throughout the negotiations process.
Terms & Conditions of Executive Agreements
Your executive agreement sets forth specific terms and conditions for your employment. Below are the most basic terms defined in the contract.
- Reporting line
- Effective date
- Job duties and responsibilities
These terms set the stage of executive agreements and are more important than they seem.
For instance, companies start to contract employees around mergers. In this situation, your start date becomes vastly more important. Do you start before or after the sale?
What happens if the merger stalls?
As an employee, you have more bargaining power than you realize, and an employment attorney helps you identify the details of your agreement.
Key Terms to Negotiate
In executive employment agreements, there are six key items to look for. Your attorney can help you identify these provisions of your contract and build a strategy per your interests and goals.
Your executive agreement outlines your compensation. The most infamous of these is for CEOs, who tend to make millions derived from bonuses and stock in the company. However, these salaries are not limited to c-suite employees.
Other executives and management employees often receive stock options as part of their compensation packages. As such, it’s important to consider whether to negotiate your salary, stock options, or both.
Commission vs Target Bonuses
A “target bonus” means that an employee earns a certain percentage under the executive employment agreement. However, sales commission comes specifically from earned sales. Both of these play a role in your ultimate compensation.
Some employers offer a bonus for signing on that dotted line. Typically, this is a mere incentive to attract the employee in the first place. Unfortunately, these bonuses don’t always meet the hype.
In some executive employment agreements, these bonuses have repayment terms. If you leave the company before a certain time, they might expect you to repay the amount. Consider whether it makes more sense to negotiate for this bonus or a higher base salary.
If you join a startup and question the viability, a lower sign-on bonus makes more sense in the event you need to leave.
A retention bonus helps companies keep employees. Generally, your agreement details certain performance expectations. If you meet them, it entitles you to the bonus.
An employer wants to keep good employees and ensure they perform well throughout their tenure. This aspect of executive employment agreements incentivizes both.
Typically, executives don’t have to worry about this. However, there are some cases where you have to understand whether you come on with a salary or as a contractor.
For instance, if you join a company in a merger, the previous company may have designated you inappropriately. Your agreement should make this clear.
Equity & Relevant Awards
For high-level executive employment agreements, equity might be on the table. Usually, this vests over a determined period of time. That means you have to stay with the company to earn that equity.
Terms of Employment
Within your executive agreement are the terms of your employment. Essentially, this details the timeline of your employment. The best-case scenario is a fixed term, not at will. Since Texas is an at-will employment state, most employees are fireable at any time.
However, there may be room to negotiate specific terms for termination. CEOs and other executives often have the option to negotiate for fixed-term employment. Still, the contract specifies the initial term.
Additionally, there may be an option to include a renewal provision, allowing executive employment agreements to renew automatically.
Change of Control
This provision refers to your rights in the event the company comes under new ownership, such as an acquisition or a merger. For example, you may have the right to rescind your contract or renegotiate upon such a change.
Additionally, there’s a provision we refer to as a golden parachute, which compensates executives who lose their jobs in the event of a merger.
Review Executive Employment Agreements with an Advocate
Above are the nuts and bolts of executive employment agreements. However, this article does not cover everything. In order to protect your best interests, it’s a good idea to partner with an employment lawyer to review and negotiate executive agreements.
To learn more about your agreement, schedule a consultation with an attorney today.