WALL STREET JOURNAL ON EXECUTIVE EMPLOYMENT CONTRACTS
WALL STREET JOURNAL: Companies
Gain the Upper Hand In Today's Executive Contracts
By Barbara Mende
been asked to relocate from California to Michigan to take a director-level
job to help with a restructuring. You'd like an employment contract that
guarantees tenure and severance pay but you're told the company doesn't
provide such contracts. Instead, you're asked to sign an agreement saying you
won't work for a competitor or hire away any employees for two years after
like this are becoming more common. It's rare to see employers willing to
give [severance] contracts, except at the very top level and where they need
just the right person for a specific position.
employment pacts offering income and employment protection are being offered
only to select senior executives. The agreements also state what both parties
can expect of each other, says New York employment attorney Robert Benowitz
of Rick, Steiner, Fell & Benowitz LLP.
recommends that agreements "provide a great deal of specificity,"
including provisions stating:
specific term of employment,
description of duties and
reporting and staffing
bonus arrangements, and
the frequency and methodology for
determining increases, promotions, office location and travel expectations.
also should cover procedures for resolving disputes and describing directors'
and officers' insurance coverage and corporate indemnification from
liability, says Mr. Benowitz. Termination and severance provisions should
spell out conditions under which executives can be terminated. Without them,
you may be an employee "at will" and subject to termination at any
time with or without cause.
can't get it all, choose your priorities, says Laurence Stybel of Stybel
Peabody Lincolnshire, a Boston-based senior level career consulting firm. He
recommends seeking indemnification in the event of a lawsuit. "You can
be sued for actions you took as an executive of a company not only while
you're there, but three years after you leave," he says. In that case,
"who's going to pay those legal fees?"
priority: severance provisions in case you're terminated. As a rule, senior
U.S. executives typically receive one month of pay per year of employment as
severance, says Geoffrey Boole, executive vice president for
career-transition services at Right Management Consultants. At the director
level, severance is likely to end after six months. Senior managers also
should request financial-planning assistance during the severance period,
says Mr. Boole, while most executives can negotiate continuing
health-insurance benefits. Other perks to request include keeping the company
car and club memberships while you're collecting severance pay.
what the company will pay you if it's acquired or has a change of control,
particularly if you help implement those changes. "You want to get a
good idea of the company's exit strategy," says Dr. Stybel. "If the
strategy is to grow the business and then be acquired, you have to anticipate
being out of a job if you succeed."
prefer contracts to be general, but executives should seek specificity, says
Loren Allison, an employment attorney in Ft. Wayne, Ind. "I don't want
you determining that I can be terminated," he says. "I want it
determined that I can be terminated if I don't follow Policy No. 5." He
notes that most companies have policy handbooks which often serve as de facto
contracts but "which they sometimes don't follow." Executives
should learn what's in the handbooks, he says.
and Confidentiality Agreements
pacts may restrain a departing employee from working for a competitor,
disclosing information gained at the company, hiring company employees, or
soliciting company customers for a certain period of time. Top sales and
marketing executives often are asked to sign noncompetes, as well as
employees in high-tech industries where intellectual property is a
interpretations vary, and different state courts take differing positions on
noncompetes. Some court systems are more willing than others to enforce the
agreements. However, most courts are reluctant to enforce agreements that
hinder someone's ability to make a living. Mr. Allison tells his corporate
clients that noncompetition or nondisclosure agreements should be good for 12
to 18 months and cover a limited, well-defined geographic area. Nondisclosure
pacts should be for truly confidential information, he says.
were once rare, then became commonplace, but companies didn't enforce them,
says Dr. Stybel. Nowadays, companies enforce noncompetes and candidates often
feel they need to sign them. "When everything else is negotiated, the
person is apt to say, 'I don't want to screw this deal up' and just sign
it," he says. "In most cases, it's probably the thing to do."
He cautions executives to be sure they can live with the terms of such
should be between you and your prospective boss, since he or she is "the
one who's going to be paying for your services, the one who really wants you,
the one who wants to make an exception," says Dr. Stybel.
time to negotiate is when you're desirable. Research a prospective employer to
learn what's previously been offered. In fact, he adds, "if you're a
senior executive and this is important to you, have your lawyer do research
employer won't agree to severance or indemnification terms, ask for
nonmonetary rewards, such as liberal health and disability-insurance benefits
or retained search services for as long as needed after termination. If you're
asked to sign a highly restrictive noncompetition contract, "it's
probably not enforceable in many states," says Dr. Stybel. "Your
choice is to shut up and think, 'Thank God they've got a dumb attorney,' or
say, 'Let's sit down and carve out something the courts can enforce and I can
Wis., executive recruiter Jude Werra says having a good employment attorney
is a wise investment. He or she should be a legal coach, not a litigator. The
lawyer is likely to stay in the background, but it's sometimes wise to let
him or her make your requests, says Mr. Benowitz. "Assuming you get the
position, you have to live with the people," he says. "Lawyers can
say things that their clients can't and can take the blame for raising the
points the clients want them to raise."
also can help with issues that arise later. "Say the division you're
with will be sold, and they want you to stay through the sale. What
[questions] do you want to ask? You'll want that good advice before you
create an adversarial situation," says Mr. Werra.
the vice-president level, you'll probably receive a letter describing the
terms of employment, which you'll be expected to countersign, says Mr.
Benowitz. The letter is likely to say you're an employee at will and can be
terminated at any time for any or no reason (subject to antidiscrimination
laws) and that your employment will be governed by the terms of the employee
handbook. It's sometimes possible to negotiate a severance agreement or
include a provision in the letter stating that termination can only be upon
notice and for cause, he says.
you're presented with a severance and noncompete agreement, try to make their
terms concurrent, says Mr. Benowitz. If your noncompetition term is a year,
ask for a year's severance. It benefits both sides, as the agreement may
allow the company to withhold payments if you breach its terms.
You Walk Away?
possible that you may not be able to strike a fair deal. In that case, you
may have to walk away. When a California company recruited one of Mr.
Benowitz's clients as president but refused to give him an employment agreement,
"we advised him to walk away if he didn't get a two-year term," the
lawyer says. "When you're relocating your life and family and incurring
relocation expenses, it's reasonable to expect some kind of guarantee."
But the executive's wife took a job in the area, so he accepted the offer
against the lawyer's advice.
Stybel sees negotiating as a way to explore a company's culture. If you make
a few discreet, respectful suggestions but the employer doesn't budge,
"the reaction tells you about the company and its values," he says.
"It's not a reason to turn a job down, but it's a diagnostic tool.
There's often a tremendous gulf between what is espoused in a job interview
and what happens when you show up for work Monday."
suggests not signing anything unless you're comfortable. "As a practical
matter, you can't go back. If you're hired because of your decision-making
ability and then try to renegotiate, you may as well pack up."