Consider the following:
The “trust” relationship between Executive and Employer is an essential factor in the level of production and goals achieved during employment. A well-drafted Executive Contract plays an essential role in protecting the relationship between Executive and Employer and provides a solid foundation from which the relationship and company can thrive.
Any material misunderstanding as to what is being promised by either party, could prove to be fatal to the relationship and harm the enterprise. The state of disgruntlement, is contagious in an enterprise and could significantly harm employer’s relationship with other executives and employees, especially, if the misunderstanding, puts into question “trust.”
Each and every Executive and Employer, has different priorities and thus, what is a “material issue” to one, may not necessarily be a “material issue” to another. If you are the Executive, do not assume that the person drafting the Executive Contract understands what is of great importance or concern to you with regard to the compensation package, and vice versa if you are the Employer. Utilize well-drafted Executive Agreements that clearly set forth the important issues and concerns of both parties.
Consider addressing the following important issues in your Executive Contract:
1. Include the Term of employment;or if at-will, clearly state that employment is “At-Will.”
2. Set forth the title and describe the position, including, the person or office to whom the Executive will report.
3. Address each party’s, expectations of commitment and include, if applicable, exceptions for winding-up of affairs of previous engagement, relocation, etc.
4. Clearly address benefits offered and include, in the writing, any benefits that concern relocation reimbursement, commuting reimbursement, etc.
5. Address issues concerning any promises by Employer, related to gross-up for tax imputed to Executive’s income, arising out of benefits received.
6. Address limitations or agreements pertaining to Executive’s activities outside of the scope of employment, for example, other directorships, volunteer work, speaking engagements, authorships, etc.
7. Compensation and bonuses should be clearly set forth.
8. If any compensation, benefits or bonuses are dependent, or contingent, upon certain goals being met, all related information should be provided to Executive prior to signing and such contingencies should be clearly described in the Executive Contract.
8. Contingencies and timing of vesting of benefits should be clearly set forth.
9. Severance and other termination provisions should be address in the same or separate written document. If severance or termination provisions are set forth in a separate writing, that writing should be reviewed prior to the signing of the Executive Contract and signed simultaneously.
10. An assignment of developments for Executives should very clearly distinguish between developments that are Employers property and developments outside of the scope of Executive’s employment.
11. Post-employment obligations, including non-compete provisions, should be specific.
12. Employers should consider the importance of having employees promise, in writing, to keep confidential all proprietary and confidential information, in the interest of maintaining trade secrets and other business interests.
13. Employers will want to include a clause allowing them to recover attorneys fees and costs in event of breach by the Executive. Executive will want it to be more difficult for the Employer to recover such fees and costs.
14. Governing law and other contractual provisions should be included as well.
Whether you are an employee or executive, you should obtain legal counsel to review and modify your Executive Contract, to protect your interests and avoid misunderstandings. The consequences of not having a well-drafted Executive Agreement are often significant, long-lasting and costly.
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