Flexing Your Muscle

How to craft an employment contract that gives you the best deal.

What soft economy? With your talent and track record, plenty of employers would jump at the chance to sign you up. That’s the frame of mind you should put yourself in when you’re negotiating a new employment contract. Having that leverage will help you pinpoint — and build on — the provisions that matter most.

Executive employment contracts are typically 10 to 20 pages long, and are saturated with subtleties that any careful candidate needs to know about.

Not that every financial executive will have a slew of decisions to consider. For some, the contract may consist of only one provision — but it is an important one: a Change in Control Agreement. This spells out the details of what will happen if a new owner appears and brands you as redundant. “CFOs are among the most expendable senior executives in an acquisition,” notes Bud Robertson, CFO of $500 million Progress Software, which serves businesses. “If your employer gets acquired, you are probably gone.” The Change in Control document is your severance package, so make sure it accommodates the position you’ll be in. After all, as Robertson points out, getting hired anew will take some time. “You aren’t just going to interview with three people at the company and get the job of CFO,” he adds. When a potential employer hands over the agreement, make sure to ask: “How long after my exit will I continue to be paid?” “Will I get my base salary and my bonus?” “Are benefits included?” “Will my options vest faster?” You want all of that — and for a year (see “Expendable You” at the end of this article).

In fact, as you evaluate any contract, consider first what happens when you leave; it’s important to know, and be comfortable with, the terms. Yes, it’s about as romantic as a prenuptial agreement, but it must be done. Termination clauses tend to be tough to negotiate and have the potential to be real pact-smashers.

How so? Consider a recent situation that pitted a highly sought-after CEO against the hard-nosed chairman of a real-estate development firm. The two made an agreement — sealed only with a handshake — that the CEO would resign from his current post and join the developer. The coveted executive was potentially a key driver of the company’s future fortunes, and he negotiated a compensation package to reflect that.

The chairman, who prided himself on being a savvy negotiator, instructed his lawyers to include a harsh termination clause as they drafted the employment contract. By the chairman’s lights, the clause would serve as a bargaining chip he could use to whittle down his original lucrative offer. Among other things, the chairman had promised the future CEO a huge supplemental retirement benefit.

As a result, the contract’s just causes for termination included an aggressively subjective yardstick: “Failed to meet board of directors’ standards.” Not surprisingly, the candidate suddenly stopped returning the chairman’s calls and the deal died. The CEO considered the overly aggressive clause a show of “bad faith” by the chairman, says J. Mark Poerio, an employment practice partner at Paul, Hastings, Janofsky & Walker. “It is fine to want to protect corporate interests, but not to the point of sending signals of mistrust.”

Discuss

Your email address will not be published. Required fields are marked *