Yesterday, we looked at the AESC BlueSteps Executive Compensation Report, which revealed that executive compensation is on the rise. Today, we turn to smart drafting of executives’ contracts.
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The checklist below comes to us courtesy of attorney Peter M. Panken of Epstein Becker & Green, PC.
- Applicable law. Which state law will apply in case of a dispute?
- The parties. Defining the employer is key—is it a parent corporation, a subsidiary corporation, or both? Can the employer assign the contract?
- Contract length. Most executive employment contracts are for a specified term of years. But it’s important to know whether your state law implies an automatic renewal absent a specific term in the contract.
- Executive’s duties. This is most often described by the executive’s title, but the description should also include other duties that may be assigned by the employer from time to time.
- Full-time employment and best efforts. The executive should agree to give full-time employment and “best efforts.” Any exceptions should be limited and carefully articulated.
- Conflict of interest and abiding by the rules. The executive should agree to avoid conflicts of interest and to abide by conditions such as the employer’s rules, regulations, and bylaws.
- Compensation. Compensation includes items such as salary, commissions, bonuses (when and how earned, by performance or longevity), incentive compensation, stock options, and deferred compensation. Be careful to have a tax specialist review deferred compensation terms for compliance with Section 405 of the Internal Revenue Code.
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- Benefits. Benefits include pension or profit-sharing, stock options, and severance benefit plans as well as vacations, holidays, and sick leave.
- Contract termination. It is important to spell out whether and under what conditions the executive is entitled to a severance benefit as a result of termination caused by death, disability, “cause,” or “good reason” to resign.
- Defining “cause.” Most states have very little precedent for defining a cause that would allow an employer to terminate an executive’s employment contract, so it’s important to define “cause” in the contract itself.
- Noncompetition agreements and restrictive covenants. Most states allow employers to require that an employee not compete with his former employer for a reasonable time within a reasonable area after leaving employment. Most states also allow restrictions on revealing trade secrets and solicitation of customers and other employees while the executive is still employed.
- Representations that employment won’t violate agreements with former employers.
- Intellectual property. It’s important to spell out who owns the inventions and other intellectual property an executive or scientific employee produces while employed.
- Dispute resolution. If there’s a dispute, will it be settled by arbitration or in court? Where will the venue be?
Source links:
http://www.hrhero.com/hl/articles/2010/01/07/checklist-for-drafting-executives-contracts/
As the economy improves, it’s not just executive compensation you need to worry about—compensation packages for all workers need to be equitable. Fewer than six in ten employees feel their employers do a good job when it comes to explaining their pay programs … how is your company stacking up?
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Register today for this interactive webinar.
Make your comp program stand out! Join us Wednesday, April 8, 2015, for a new interactive webinar, Differentiating Pay for Performance: A Step-By-Step System for Defining Your Needs, Metrics and Goals. Earn 1.5 hours in HRCI Recertification Credit. Register Now
By participating in this interactive webinar, you’ll learn:
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Wednesday, April 8, 2015
1:30 p.m. to 3:00 p.m. (Eastern)
12:30 p.m. to 2:00 p.m. (Central)
11:30 a.m. to 1:00 p.m. (Mountain)
10:30 a.m. to 12:00 p.m. (Pacific)
Approved for Recertification Credit
This program has been approved for 1.5 credit hours toward recertification through the Human Resource Certification Institute (HRCI).
Join us on Wednesday, April 8, 2015—you’ll get the in-depth Differentiating Pay for Performance: A Step-By-Step System for Defining Your Needs, Metrics and Goals webinar AND you’ll get all of your particular questions answered by our experts.
Train Your Entire Staff
As with all BLR/HRhero webinars:
- Train all the staff you can fit around a conference phone.
- Get your (and their) specific phoned-in or emailed questions answered in Q&A sessions that follow the presentation.