The business lawyers at the Katz Law Group guide companies and executives through the complicated and stressful process of hiring a corporate executive to lead the company. The executive employment contract can be one of the most important documents that the company ever creates. For the individual executive, it can be the contract that makes their job rewarding or extremely difficult.
The employment attorneys at the Katz Law Group can legally represent either individual executives or the corporations that hire them during this sensitive but critically important stage.
Why is an Executive Contract So Important?
The executive contract is one of the most important contracts that a corporation will use because its terms can enable or prevent the company's most powerful employee from helping or hurting the organization. For the executive, the terms of the executive employment contract can give them the autonomy they need to grow the company, or can leave them with so little authority that they can barely act, making them powerless to enhance their reputation as a good business leader and imperiling their professional future.
The executive and the corporation should have the same interests at heart. They should both want to see the business succeed under the executive's watch. But both sides should also use the executive employment contract to protect themselves from the potential misconduct of the other party. This creates an extremely sensitive negotiation process, potentially with the future of the business at stake.
Creating a document that protects and furthers everyone's interests is not easy to do.
What Needs to be Included in an Executive Contract?
The specific demands of an executive contract will depend on the company and its concerns. The potential executive can also negotiate for additional terms and provisions to alleviate his or her worries. While this negotiation process leads to unique agreements, the following issues are almost always addressed in an executive contract:
- The duties and expectations of the executive position
- The scope of the executive's authority
- Executive compensation details
- Conduct that amounts to a breach of the contract
- How the contract can be terminated by the parties
- Severance benefits
- Post-termination responsibilities
Duties and Expectations of the Executive
A critically important aspect of the executive contract will be the provisions that detail what the position entails and how the executive is expected to fulfil them. Obviously, this will be unique to every business. A big challenge that all executive contracts face, though, is in how precise the language should be. If it is written with concrete specifics, it can be very clear, but will likely leave lots of situations unaccounted for unless the contract is prohibitively long. If the language is too vague, it can be interpreted in too many different ways to be useful or effective.
Scope of Authority
The executive contract will also generally include a description of when the executive can act and when he or she cannot. This is very important information for determining the decision-making process. Just like with the expectations and the duties of the executive, these provisions should use language that is neither too vague nor too specific, and should be tailored to the concerns of the ownership.
For the executive, the most important aspect of the contract will be the portion concerning executive compensation. The types of compensation offered are important to the corporation, as well, though – the compensation should be used to align the interests of the executive with the goals of the company.
The contract will also usually contain provisions that detail the kinds of acts that the executive cannot do. These should include criminal acts and the types of financial fraud that the corporation is most worried about. However, it should also include specific concerns of the company.
Executives, however, should pay close attention to the specific types of conduct that are prohibited. Corporations may include language that is vague enough to include normal business practices in order to invoke this portion of the executive contract and claim that a subsequent termination was “for cause.”
All executive contracts should include the exit strategy, as there is no guarantee that the executive will stay in the position for the rest of their life. Provisions that cover the termination should detail how it can be done, how much notification must be given, which party can initiate it, and how termination disputes are to be resolved.
Executive contracts should also contain provisions that amount to a severance agreement. This portion of the contract should include details that cover what happens when the executive was terminated with or without cause, as well as when the executive quits or retires.
One of the most important aspects of an executive agreement is also the one that is furthest away in the future – what happens after the executive leaves. Companies generally want to control former executives as much as possible in an attempt to protect the corporation. Executives, meanwhile, need to protect their professional futures from overbearing control by former employers.
Negotiating the terms and conditions for the distant future is critical, but also often neglected. Important issues to be resolved include:
- Non-disclosure agreements
- Non-compete details, including the garden leave policy
- Non-solicitation agreements to protect the company's clients and workforce
What are the Risks of a Poorly Drafted Agreement?
The risks of using a poorly drafted or a hastily negotiated executive agreement are substantial, both for the corporation and for the executive.
The company runs the risk of an executive who uses vague provisions in the contract to solidify power over the company and run it in ways that go contrary to the interests of the owners.
The executive runs the risk of losing their autonomy and becoming nothing more than a rubber stamp for the ownership, losing future employability, or being called on to do so many unforeseen tasks that they end up being woefully underpaid and overworked.
Massachusetts Business Lawyers at the Katz Law Group
The business lawyers at the Katz Law Group can provide the legal representation that a corporation or an executive needs at this critical moment. Contact them online or call their law office at (508) 480-8202 for help in Worcester, Marlborough, or Framingham, or in Norfolk or Middlesex Counties or the rest of Massachusetts.