Psychology Today: Here To Help


Should you ask for an employment contract? We tell our clients, “If you don’t ask, you don’t get.”

Michael Mooney of Boston’s Nutter McClennen & Fish finds that there are three times when issues of employment contracts come up: prior to accepting employment, during employment, and when employment is terminated. It is far easier to negotiate employment terms prior to employment. And it is in everyone’s interests that you do so.

Why is It In Everyone’s Interests?

The recruitment process is like a courtship. And the employment agreement is the prenuptial contract. Both parties may be reluctant to jeopardize the positive relationship built up during the courtship. But such agreements help both parties. Attorneys Justin P. Morreale and Donald Bruce-Adams of Bingham Dana & Gould argue that employment contracts help employers in two ways. Such agreements:

  • Provide key employees with a carefully designed set of incentives to encourage them to remain with the enterprise.
  • Provide investors with increased assurance that key people in which it has invested will continue on their jobs...or at the least will not be in a position to compete with the enterprise.

Who Provides Contracts?

Herb Crehan of Hay Associates in Boston reported on the results of a survey of over one thousand companies. Nearly 40% of responding companies provide employment contracts. Certain industries are more prone to providing employment contracts, such as entertainment, media, and retail. Insurance and banking sectors are less prone to provide such contracts. The Hay Associates data is historical. Based on our consulting practice, we suspect that the trend in insurance and banking is moving toward the median.

Asking for a Contract

If a company sells stock on the public market, ask for a copy of the 10K report. The appendix of the report sometimes lists key employment contracts signed by the company. If the company is private and you will be reporting to the President, it is appropriate to ask your prospective boss if he or she has an employment contract.

"Don't You Trust Me??!!

Some prospective bosses will react with indignation at the notion of an employment contract. If the person says, "We don't believe in providing employment contracts to our people," you might gently (and without sarcasm) ask if key employees are allowed to join the company without signing non-compete and non-disclosure agreements. A company which asks employees to sign such statements has employment contracts. The issues should now focus on how the terms of the contract can be defined to create a win/win situation between employer and employee.

Another way of making the argument for an employment contract is to ask if the company is public or intends to go public in the future. Once public, there is always the possibility of that company being acquired. Once a company is in play, a public company must be careful about carving out special employment considerations for the top management team. There would be risks of shareholder law suits. The best way to avoid this problem is to develop a contract now, far in advance of the event.

We advise our clients to stress that the purpose of the contract is not adversarial. The purpose of the contract is to create a defined set of win/win conditions for both sides. We recommend frequent use of the “win/win” mantra as a way of setting-up the proper climate for discussions. Most employment contracts at the senor level tend to be organized around the following themes:

Job Description

This section spells out the scope of the employee's responsibility to the company, including title. It is a good idea for the company to clearly spell out what binding contracts the employee can enter into on behalf of the enterprise without consulting with higher authorities. Such a clause protects both parties in the event of future problems.

Outside Commitments

You should seek to get clarity regarding the company's position on engaging in outside activities (e.g., serving on profit and nonprofit boards, running for election). Clarity over these issues now will avoid harsh feelings later.

The National Association of Corporate Directors' guidelines on the evaluation of chief executives recommends those chief executives officers be permitted no more than one outside Board where the CEO can serve. It feels that sitting on one outside Board helps provide the CEO with perspective. It is, however, possible for a senior executive’s efforts to be distracted by excessive Board participation.


Properly designed, this section should strive for a win/win framework between employee and employer. Key issues in this section include cash compensation (salary, bonus) benefits (health plan, disability insurance, retirement, etc.), and equity compensation (stock).


More and more companies are providing stock as an incentive to bring key people into the organization. Stock is also being used more frequently as a major component of the total cash compensation picture. In a public company, disposing of the stock is a relatively straightforward matter. Bruce McLaughlin of The Survey Group of Wakefield, however, asks how does one dispose of stock in a privately held company? Who assigns value to the shares? McLaughlin argues that it makes sense to be specific regarding buy/sell agreements regarding equity in private companies. Morreale and Bruce-Abrams caution that grants of stock may place a financial burden on the employee, when the stock to be transferred has significant value. The tax consequences of stock transfer and who pays the tax should be thought through in advance.

Supplementary Employee Retirement Programs (SERPS)

Morrill Koslow & Associates of Danvers designs SERPS for senior executives in the financial and health care sectors. According to D. John Gagnon of Morrill Koslow, SERPs “are common today as a way to provide senior executives with reasonable retirement packages in light of the fact that many qualified plans have compensation and benefit caps which limit the amount of retirement income senior executives can receive.” If you can, ask for a SERP program. Have an expert review with you the security, vesting, and funding alternatives of SERP agreements. Watch Your STEP. Some of our clients contemplate assignments in volatile situations. Typical examples:

  • What happens to me if the company is acquired?
  • What happens to me if the company goes bankrupt?
  • What happens to me if the owner suddenly dies and non-friendly relatives of the family business take over?

David Isaacson of Waltham based First Financial Resources notes that Section 419A (f) (6) of the Federal tax code allow companies to establish a severance trust executive program. This Trust would be protected from creditors; payment is tax deductible and growth is tax deferred. A Section 419A trust is a welfare benefit plan. It provides benefits in the event of dismissal for reasons other than cause, involuntary termination of employment, disability, or death. It is structured as a Multiple Employer Trust, which allows for prefunding through employer contributions on a tax deductible basis. Isaacson also counsels corporations on setting up SERPs.


. Indemnification refers to compensation of the executive for legal expenses associated with performance on the job. Unless specified in the employment contract, you want to ask that indemnification would survive the end of the termination agreement. Mike Mooney argues that it is possible for you to be sued for a corporate action ten years after the action has taken place. Don’t accept the assurance that indemnification issues are spelled out in the corporate bylaws. Those governance terms can easily be amended by future Boards once you are no longer with the company. You have a stronger position, if the indemnification provisions are spelled out in the contract. Protection of Intellectual Property This section is for the benefit of the employer only. It includes discussions about non-competition, trade secret protection, solicitation of current or former customers and employees.


When does the employment contract terminate? If there is no provision for rolling terms, then you may need to renegotiate the entire package at the end of the term. That negotiation is not conducive to positive relations between you and the Board. Go for rolling terms. When does your employment terminate and how? Attorney Chip Morse, Jr. of Morse, Barnes-Brown Pendelton,P.C. of Waltham argues that this section may be the most important part of the entire agreement. The interests of both parties are clearly in conflict. Morreale and Bruce-Abrams caution the parties to keep in mind the ultimate purpose of this section:

Employers want to (1) obtain adequate notice from employees who desire to leave (2) maintain flexibility to remove employees (3) avoid an employment contract which locks them in to keeping an employee they would rather not have.

Employees want to obtain protection against financial hardship resulting from unanticipated interruptions in compensation.

Severance pay arrangements need to be spelled out in the document. Key issues will revolve around (1) how much notice an employee must provide, should the employee seek to terminate the contract and (2) how much notice the company provides in the event it decides to terminate employment. And would those arrangements differ if the decision is for cause or for the convenience of the company?

You would want termination to be based on a “supermajority” vote of the Board....66%. You would feel bad if your termination was based on the vote of only one Board member.

You want the termination benefits spelled out in advance. These options should include your right to select your own retained search consulting firm. It is, after all, your career. You should decide who is the best counselor for you.

How Binding?

David Ellis of Boston’s Foley Hoag & Eliot suggests that you ask for the contract to be binding on “successors and assignees.” In the absence of such a clause, you may have to renegotiate the entire contract or accept employment-at-will status if your company is acquired.

Who Pays

In most cases, both parties can structure a win/win contract. It is prudent, however, to consult with a legal advisor. Look for someone with (1) experiences in negotiating such contracts for both side (2) who understands your industry (3) and who has dealt with executives at your level. Assuming no major problems, you can obtain from the attorney an expectation of the range of professional fees involved. You can ask that these attorney fees be reimbursed to you by the company as part of the employment contract.

Laurence J. Stybel and Maryanne Peabody are co-founders of Stybel Peabody Lincolnshire, a corporate-sponsored retained search consulting firm based in Boston. Its focus is senior level professionals. Their website is called THE BOARD LEVEL CAREER RESOURCE CENTER and can be found at HTTP://WWW.CAREERLINC.COM. They may be contacted at or 781/736-0900