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What Are the Differences Between Executive Contracts and Non-Executive Contracts?

April 23rd, 2024
Our Philadelphia Executive Contract Lawyers at The Gold Law Firm P.C. Represent Employers in Executive Contract Disputes

Also known as employment agreements, executive contracts outline the terms of an executive’s employment, including salary, job description, benefits, and other perks like bonuses and stock options. It is a written agreement between an employer and a highly compensated employee who serves in an executive capacity, like Chief Executive Officer, Chief Financial Officer, or Chief Operating Officer. This sets clear expectations and legal safeguards, not only for the employee but for the company as well. When negotiating an executive contract, all employment parameters must be addressed, some obvious, while others require thorough analysis. An executive contract lawyer can review a proposed executive contract, negotiate the terms of the contract, and ensure that the document protects and furthers both parties’ interests.

What Should Be Included in an Executive Contract?

Typically, an executive contract encompasses a variety of sections, the specifics of which will vary depending on factors such as the executive’s position, the industry, and other relevant considerations. However, most executive contracts will feature the following key sections:

  • Base salary: In most cases, a significant percentage of an executive’s annual salary comes from bonuses, commissions, and other forms of monetary incentives offered to generate high-performance levels. However, negotiating a competitive base salary is the cornerstone of any compensation package.
  • Short-term incentives: Executive contracts often include annual incentives and bonuses. These short-term incentives are generally given at the end of the year and reflect the employee’s performance. The amount of the incentive will depend on a range of factors, including the industry and the markets and whether the bonus is a fixed amount or a percentage of the executive’s base salary.
  • Long-term incentives: These are another common element in an executive contract. In most cases, they are included in contracts involving high-ranking executives whose positions will significantly impact the company’s success.
  • Confidentiality requirements: Most executive contracts require high-level executives to sign a confidentiality agreement, preventing them from divulging confidential information about the company.
  • Benefits: Executives are entitled to a wide range of benefits, including health and dental coverage, paid sick days, extended vacation days, life insurance, and long-term disability insurance.
  • Perquisites: These are also known as perks, non-cash privileges included with financial compensation. Common examples include gym memberships, educational reimbursement plans, country club memberships, and access to company vehicles or airplanes for business travel.
  • Severance and change-in-control agreements: This is another important aspect of an executive contract, as it outlines what the employee will receive if their employment is terminated or the company changes ownership. Severance packages may provide up to 24 months of salary or more, based on the employees’ years of service. A Golden Parachute clause states that the executive will receive compensation and other benefits if the company changes ownership.

The following are additional examples of standard terms and conditions that are generally included in executive employment contracts:

  • Good reason clause, which defines whether the executive has been constructively dismissed per se, and can obtain their without cause termination clause payment. Most “good reason” clauses consider a constructive dismissal when remuneration is reduced; the employer breaches the employment contract, the employer changes the executive’s reporting structure, a majority of the board of directors changes, and a majority of the employer’s shares change hands.
  • Arbitration clause, which allows the employer and the employee to keep litigation a secret and avoid the expense associated with litigating a wrongful dismissal in court.
  • Benefits clause, which may include expanded benefits like executive health care, directors and officers insurance, and life insurance.
  • Well-defined resignation notice clause
  • Liability and indemnification clause

What Are the Different Types of Executive Contracts?

An employer may use several different types of executive contracts when filling an executive position. The following are examples of the most commonly used employee agreements and contracts:

  • At-will contracts: At-will contracts are the most commonly used employment agreements. An employer reserves the right to terminate an employee at any time, provided the termination is legal. The employee also has the right to quit for any reason.
  • Written contracts: These are more thorough listings of rights, rules, and obligations that employers and employees must follow. They are similar to at-will contracts. However, termination is only allowed if the employee violates the terms of the agreement.
  • Oral contracts: These are also similar to at-will contracts, although oral contracts are based on a verbal agreement between the employer and the employee. Since they are not in writing, they are more difficult to enforce or prove a case brought by an employer or employee.

Our Philadelphia Executive Contract Lawyers at The Gold Law Firm P.C. Represent Employers in Executive Contract Disputes

Our skilled Philadelphia executive contract lawyers at The Gold Law Firm P.C. are prepared to thoroughly review your executive contract and ensure that your legal rights and your company’s assets are protected as you negotiate a comprehensive executive employment contract. In the event of an executive contract dispute, our knowledgeable legal team is prepared to defend the terms of the contract in court and ensure that you are protected from future disputes brought by employees. To schedule a free consultation, call us today at 215-569-1999 or contact us online. We have offices in Philadelphia and Pennsauken, New Jersey, and we serve clients in South Jersey and Southeastern Pennsylvania, including Wilkes-Barre, Scranton, Northeast Philadelphia, Bucks County, Chester County, Delaware County, Lehigh County, Montgomery County, and Cherry Hill.

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