An executive employment contract is a legally binding agreement between a company and a senior-level executive. It outlines the terms and conditions of the executive's employment, including important terms like compensation, benefits, duties, responsibilities, and termination clauses.
An executive employment contract is more detailed and comprehensive than a standard employment agreement because of the higher expectations of executives in an organization. The purpose of an executive employment contract is to protect the interests of both the company and the executive throughout the employment relationship.
How Do I Review an Executive Employment Contract?
It is important to carefully review an executive employment agreement to ensure that the contract accurately depicts the agreement made between the company and the executive.
Follow these steps to review an executive employment contract:
- Read and understand the entire agreement. Before signing the contract, you need to read the entire document and fully understand the terms. An executive employment contract will cover a lot of important information, so it is important to take your time.
- Take note of the key terms and provisions. Identify the key terms of the agreement like benefits, severance, and noncompete clauses. Make sure that you understand these terms and make a list of any provisions you may want to renegotiate.
- Verify the financial terms. Be sure to double-check any provisions that include financial terms like compensation, bonuses, or equity grants.
- Be prepared to negotiate. Executive employment contracts are often heavily negotiated to ensure that the interests of both parties are fairly represented. If you don’t agree with certain provisions, be prepare to negotiate more favorable terms.
- Seek legal advice. Executive employment agreements can be complex documents that involve significant financial implications. Before signing this contract, you should consider seeking legal advice. An attorney can provide expertise, identify potential pitfalls, and offer recommendations.
What Should Be Included in an Executive Contract of Employment?
An Executive Contract of Employment should include the following essential elements:
- Parties. The names and contact information of the executive and the company including the executive's job title and department.
- Effective date. The date when the contract will go into effect.
- Employment term. Whether the employment is for a fixed term or is at-will employment. If the employment is at-will, either party can terminate the employment at any time for any reason.
- Base salary. The agreed upon base compensation the executive will earn and the method and frequency of payment.
- Bonuses, incentive compensation, or profit-sharing. Any bonuses or equity grants that the executive will be entitled to and whether certain performance metrics need to be met to earn the bonuses.
- Benefits package. Benefits the executive will receive like health insurance, retirement plans, and vacation time.
- Duties and responsibilities. A detailed outline of the executive’s job description, duties, and responsibilities.
- Expected work hours. The number of hours the executive is expected to work in a specific period of time.
- Termination and severance. The grounds and procedures for termination and severance pay and benefits in the event of termination without cause.
- Non-compete and non-solicitation. Any restrictions on working for competitors or soliciting the company's clients or employees after leaving the company.
- Confidentiality. Provisions that protect the company's confidential information, trade secrets, and proprietary information.
- Performance review and evaluation. How the executive's performance will be evaluated, evaluation frequency, and the process for feedback and performance improvement.
- Benefits upon departure. Any post-employment benefits like health insurance, stock options, or retirement contributions.
- Golden parachute provisions. Provisions related to compensation and benefits upon termination due to a change of control.
- Notice and communication. Notice requirements for communication between the parties like where notices should be sent and how they should be delivered.
- Severability clause. A provision stating that if any part of the contract is found invalid or unenforceable, the rest of the agreement remains in effect.
- Signatures. Both the executive and a company representative must sign the agreement to show that they accept the terms of the contract.
Depending on the needs and goals of the executive and the company, the executive employment agreement may require additional clauses and information.
If you are unsure what terms need to be included in your executive employment contract, always consult with a knowledgeable attorney. Legal counsel is always recommended when negotiating and finalizing executive employment contracts to ensure that both parties’ interests are protected and that the terms are in compliance with relevant laws and regulations.
How Do You Negotiate an Executive Employment Agreement?
Negotiation is a critical step in the executive employment agreement process. If you want to effectively negotiate favorable terms, follow these steps:
- Outline your goals. Before entering negotiations, have a clear understanding of your objectives and goals like salary, benefits, equity, and job responsibilities.
- Conduct research. Don’t go into negotiations without researching industry standards, compensation benchmarks, and typical benefits packages. This information will help you establish reasonable expectations.
- Propose specific changes. Prepare a list of specific changes or additions you'd like included in the contract. Be prepared to explain why each change is important and how it benefits both you and the company.
- Prioritize your requests. You will never get everything you want in a negotiation, so it is important to prioritize your requests based on importance.
- Remain flexible. While it's crucial to advocate for your interests, be open to compromise. Consider alternative solutions or concessions that may be acceptable to both parties.
- Leverage your value. Be ready to highlight your skills, experience, and contributions that make you a valuable asset to the company.
- Consult a lawyer. If the contract is complex or contains legal terms you're unfamiliar with, consult with an attorney experienced in employment contracts. An attorney can offer guidance and prep you for negotiations.
Should a Lawyer Review my Executive Employment Contract?
Yes. It is highly encouraged to hire a lawyer to review your executive employment contract. Hiring a lawyer to review your agreement provides the following benefits:
- Legal expertise. Lawyers who specialize in employment contracts will understand the legal language in the contract and can identify potential pitfalls that non-legal professionals might overlook.
- Customization. Every executive employment contract is unique, and the terms depend on the executive and the company. A lawyer can tailor the agreement to suit the specific needs and goals of the parties involved.
- Risk mitigation. A lawyer's review helps identify and address potential legal risks, protecting your interests and reducing the likelihood of disputes.
- Advocacy. If certain terms need to be revised, a lawyer can negotiate on your behalf, leveraging their expertise to secure more favorable terms.
- Confidence in the contract. Knowing that a lawyer has thoroughly reviewed the agreement can provide you with peace of mind that the executive employment contract fully protects your interests.
An executive employment agreement will have a significant impact on your career and goals. It is important that this agreement is well drafted, negotiated, and accurately represents your interests. Before signing this contract, always hire a lawyer to review the agreement.
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