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What Should Be in an Executive Contract?

January 7th, 2023
executive contract

An executive contract is an employment agreement for employees serving in leading executive functions within an organization, such as a chief executive officer, chief operating officer, or chief financial officer. Executive contracts should contain specific terms detailing the duration of employment, duties and responsibilities, compensation and benefits packages, severance, any necessary restrictive covenants, as well as methods for dispute resolutions. These are the most basic elements of any executive contract, but clauses specific to the employment situation may be included if both parties agree to them.

Why Are Executive Contracts Important?

Often, the board of directors of a company is not interested in offering an executive contract and may refuse to use one to maintain control of the relationship. They prefer to have the least amount of legal obligations possible and the most freedom in decision making. Forgoing an executive contract also removes the need to negotiate over the terms of the document.

However, there are many advantages when using an executive contract. First, it demonstrates the employer’s commitment to the executive being hired. By clearly defining the expectations of job performance, it ensures that everyone is on the same page when it comes to the goals for the company. This includes all the members of the board of directors.

Most executives prefer to have an executive contract because it contains some kind of payment guarantee should the employment relationship fail to flourish. This is known as a severance package.

How Does a Severance Package Work?

When an executive and the company decide to part ways, there is usually an amount of severance paid that is stated in the executive contract. The amount can be tied to the length of employment and determined by a formula. In some instances, such as when the executive has committed a crime, the company is not required to make the severance payment. The specific details of what circumstances do or do not trigger a severance payment should be carefully spelled out in the executive contract. Some severance packages include the payment of certain benefits for a period of time after the executive leaves the company.

What Are Restrictive Covenants?

Restrictive covenants are clauses that limit what work an executive can do after leaving the company, also known as non-compete agreements. This is to prevent an employee from leaving and taking trade secrets or proprietary information to a competitor. Starting a competing business within a certain time frame after the end of the contract is also usually restricted.

Compensation and Benefits Packages

Executive compensation is usually complicated. The executive contract should make clear how the executive is to be compensated, such as salary, bonus structure, stock options, retirement plans, company vehicle, and any other perks. All of it should be put into writing. Before offering an executive contract, have it thoroughly reviewed by an experienced lawyer.

Philadelphia Executive Contract Lawyers at The Gold Law Firm P.C. Provide Experienced Counsel to Business Owners

Avoid unnecessary financial risk by contacting our skilled Philadelphia executive contract lawyers at The Gold Law Firm P.C. today. We negotiate executive contracts that protect an organization from costly and draining disputes. Call us at 215-569-1999 or contact us online to schedule a free consultation. Located in Philadelphia and Pennsauken, New Jersey, we represent clients in South Jersey and Southeastern Pennsylvania, including Wilkes-Barre, Scranton, Northeast Philadelphia, Bucks County, Chester County, Delaware County, Lehigh County, and Montgomery County.

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