Executive Contracts
Philadelphia Employment Lawyers
High-level executives are specialized and highly trained in their fields. They are sought out for their special skills and the industry connections they offer to new employers. For these reasons, executives and other senior management figures tend to be well compensated and lavished with perks and incentives by prospective employers.
Often, the compensation package and other employment agreements are summed up in an executive contract that lays out the terms of employment, which often includes an outline of what the job entails, the types of compensation that will be offered, and what conditions will be in place when other circumstances arise. An executive may wonder what should be included in an employment contract. It is important for an executive to understand all aspects of the employment contract to ensure that they are receiving the best possible offer.
It can be beneficial for an executive who is in the midst of an employment contract negotiation with a potential employer to seek the advice of a seasoned lawyer. An lawyer can provide insight into what kinds of executive compensation and benefit packages others have received in similar contract discussions with employers in the same industry.
Why are Executive Contracts Useful?
An executive contract can provide the employer with a sense of security because the employee has agreed to remain with the company for a certain amount of time. It can also be useful for the employer to feel secure that the new employee has pledged not to divulge company secrets or leave to join a competitor, so investing in the employee’s success is an important benefit as well.
With a well-negotiated and thoroughly prepared executive contract, an executive joining a new firm can find comfort in the idea that they can move forward knowing that investing their talent in the business will be rewarded on terms favorable to them. However, during the negotiation process, an executive should understand their value and hold firm to ensure that they receive the terms that fairly reward them.
When is the Best Time to Negotiate an Executive Contract?
While it is possible to negotiate employment terms after joining a company, the best time to secure a beneficial deal is when the company is trying to attract the talent they need to develop their team. It is fine to wait until an offer is made to digest the company’s proposal, but it is also possible to start the negotiation process.
Additionally, a contract negotiation might take place when there is an upheaval in top management that affects leadership positions or reporting relationships. In any scenario, it is best to negotiate an employment contract as soon as possible. A lawyer can help with this process.
What are the Risks of Accepting a Position Without Negotiating a Contract?
Senior executives and other top management leaders that blindly accept the terms of the agreement may later regret their inattentiveness and rash decision. Without taking an active role to ensure that the contract terms are as favorable as possible, the executive employee may be missing any opportunity to leverage their skills at the point when the business is most inclined to entice them.
By heedlessly accepting the employer’s offer, the executive may be leaving behind a considerable amount of money and other incentives on the table. They may also find that not working to secure the agreement for their future with the new company can limit their career in ways that go beyond monetary compensation.
What Should an Executive Keep in Mind Before Accepting a Contract?
Even if the terms of the employment agreement suit the executive’s wishes, the working arrangement may still be problematic if the company goals and culture do not fit with the executive’s expertise and character. This mismatch can also occur if the executive comes to find that their expectations for the company’s success were inflated. They may end up feeling stuck in a job that is not working for them. The terms of the contract should address the possibility that the executive and the hiring company may turn out to be incompatible with one another.
What Items are Negotiable in Executive Contracts?
In addition to an offer of salary and employee benefits, like health care and other routinely offered perks, an employee contract can outline additional employment arrangements and incentives that might not otherwise be a part of the employment compensation package. The contract might also govern the way the executive conducts their work, manages specific projects or personnel, or reports to other corporate leaders. It can lay out criteria for raises, bonuses, and other performance-based incentives.
The contract can outline the length of the contract and sum up the rules regarding termination and severance. Some important employment contract items are listed below.
Salary and Employee Benefits
The executive agreement may lay out the duties the employee would be responsible for in the position, including management of subordinates, performing specific tasks, or meeting certain goals. Additionally, an official executive contract will stipulate a salary for the position and corresponding employee benefits offered by the company.
Some crucial employee benefits that may be outlined in an executive contract include:
- Expense Accounts: An expense account allows an executive the freedom to persuade clients by using some of the company’s resources for business needs. Expense accounts may be laid out in the executive agreement, which states that any expenses that the employee should incur while performing the duties of the job will be reimbursed by the company.
- Fringe Benefits: An agreement allowing the executive to expense items for personal use, such as a personal smartphone, can be a part of the executive’s contract agreement. The use of a company car, monthly fees for a gym membership, and payment of membership dues for golf or social clubs are examples of fringe benefits that an employment contract may cover.
- Signing Bonus: A company may offer a signing bonus to lure in the potential employee. The one-time bonus can be included in the larger offer outlined in the employment contract. A signing bonus is meant to entice the executive to join the company.
- Performance Bonuses: The contract may state that a performance bonus is in store for the executive if they meet certain goals within the company. These goals might include targets for the company’s revenue or net income.
- Discretionary Bonuses: The allowance of periodic or ad-hoc bonuses may be built into the employment contract.
Equity Compensation
Compensation in the form of stock in the company can be a great way for the business to motivate the executive to help the company perform well. Every increase in the value of the stock increases the amount of compensation that goes into the executive’s bank account. It is important to recognize, however, that this type of compensation is not without risk.
Additionally, restricted stock options differ from other stock options due to the fact that the employee is unable to sell them until they are fully vested with the company. This means that if the employee leaves the firm before the end of the vesting period, they will forfeit the shares. The employer can use this type of compensation as an incentive to stay with the company.
Another advantage to equity compensation is that it can be a good way to pay an employee while making the most of the tax code because company stock holdings are taxed at a lower rate than traditional income. Appreciation of the assets and lower tax liability for capital gains can translate into higher earnings for the executive, as long as the plan is structured correctly.
Relocation Support
The hiring company may offer to pay the expenses for relocation if the executive must move to another city once they accept the job offer. Moving costs and even housing allowances can come up in some employment contract negotiations.
Employment Duration
The employment contract may outline a specific timeline for a contract to be in effect, perhaps until a certain project is completed or a new strategy is implemented. In some cases, an employment agreement may retain the option to be renewed at the end of the term.
Severance Pay
An employment arrangement between a senior executive and a hiring company should mention the conditions under which the two may separate. There is no guarantee that the arrangement will be a good match, so the contract should outline what conditions will have to be in place in order for the executive to leave the company or be dismissed from their role in the organization. The agreement should be clear about what constitutes breach of contract and what the consequences will be if that happens.
If the termination clause in the contract allows the company to end the executive’s employment with the firm, there will usually be a corresponding severance package listed. The employment contract should have a clause that stipulates how much severance pay the executive will receive if they are let go prematurely. A lawyer can help their client with a fair severance agreement.
If the company terminates the employee’s contract, it may be for business reasons that do not reflect poorly on the executive. Still, having the severance clause in writing can ease any disagreements about what the company owes for ending the agreement early.
If the executive leaves the company with good reason, they still may be eligible for severance pay, depending on the contract. Companies are surprisingly willing to offer such favorable terms to attract the right executives to lead their organization because these employees are in high demand, and the employers want to keep their options open.
What About Non-Compete Clauses and Non-Disclosure Agreements?
One major advantage for businesses is that they can require an executive to sign a non-compete agreement as a part of the employment contract. A non-compete clause aims to bar the employee from leaving to work for a rival organization. This is important because a high-ranking executive might have access to company secrets that the employer does not want shared.
Another fear of the employer is that the executive may also have industry connections and insights that the employer would not want to make available to a competitor. Generally, the non-compete clause in an executive-level employment contract is upheld in court if it is reasonable. In some states, the courts may narrow the focus of the non-compete clause to reach this fairness threshold; other states may throw out the whole clause if it oversteps certain boundaries.
An executive employee contract may also contain a non-disclosure agreement. Similar to a non-compete clause, a non-disclosure agreement serves to keep privileged information out of the hands of industry competitors. Having this agreement in place can protect the company’s confidential financial and business strategy information.
The contract should list which specific information the clause covers so there is no doubt about what the executive can and cannot disclose to others outside the company. The non-disclosure agreement should apply throughout the duration of employment as well as a certain amount of time after.
How can a Lawyer Help With an Executive Contract?
Executives who know their worth understand that they wield the power to control the terms of their career and earning potential. However, a lawyer with a specialty in employment law and executive contracts can support the executive’s confidence in the undertaking, advise them on the negotiation options open to them, and work out the details with the potential employer’s legal team. With a clear understanding of their role, the executive can achieve a fair contract that balances their goals with the company’s expectations in a legal and enforceable document.
A lawyer can also help in the event that the working arrangement does not pan out as planned. A lawyer can offer to represent the executive in a contract dispute over the executive employment agreement. During the negotiation process, it is best that an executive speaks to a lawyer as soon as possible to ensure they are receiving the best possible offer.
Philadelphia Employment Lawyers at The Gold Law Firm P.C. Represent Clients in Executive Contract Negotiations and Disputes
If you are a corporate executive negotiating the terms of an employment offer, you want to make sure that the agreement you make with your prospective employer will work out for you in the long run. The Philadelphia employment lawyers at The Gold Law Firm P.C. can help you understand your options and suggest an approach. Call us at 215-569-1999 or complete our online form to schedule a free consultation today. We are located in Philadelphia and Pennsauken, New Jersey, and we proudly serve clients throughout South Jersey and southeastern Pennsylvania, including Wilkes-Barre, Scranton, Northeast Philadelphia, Bucks County, Chester County, Delaware County, and Montgomery County.
