Flexing Your Muscle

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

Change of control is another event that falls under the “good reason to resign” category. The change can relate to a merger or acquisition, a significant change in board members, or an investor buying up an unusually large stake. In any case, clauses defining such change should be clearly spelled out. A private company likely will demand that its executives surrender their equity (phantom or otherwise) as they exit. That’s why candidates should push for language specifying that if they have to surrender shares, their payout will be based on the fair-market value of the stock. This is also the place to indicate how the shares will be appraised — by a third party, for example.

It is also crucial to review noncompete agreements before accepting a position. These are intended to keep departing executives from working for rivals or in related industries for a period of time. But they often cannot be enforced, says Poerio. Not that you need to share that with your employer. Such restrictions purport to cover time periods from six months to two years, usually specifying that the departing executive cannot solicit the company’s customers, raid the staff (even if the staff member approaches the former executive), make disparaging remarks about the company, or disclose critical information.

Department of Perks

Perks are part of every executive employment contract, but they can “be a lightning rod for criticism,” says Poerio. Now that perks must be publicly disclosed under the new SEC rules, “my tendency is to forget the perks and make it up in salary,” posits Poerio. He reasons that if the executive needs security protection, that’s easy to explain to investors. The Mercedes-Benz not so much. Remember, fringes still have to be “critical and justifiable,” but that definition can stretch pretty far — all the way to your country club of choice, in fact.

Not that you’re likely to be spending much time there. That’s why it’s worth remembering that when you and your new employer reach an agreement, you shouldn’t do so on the basis of an appealing employment contract. Don’t let fancy documents blind you to the job itself. And what if you decide it’s just not what you want to do? You can stop negotiating at any time and you don’t have to say a word. Just drag your attorney to the next meeting. “Companies don’t like that,” assures Hallas. Right then and there, they may very well decide you’re not a good fit. Then it’s on to the next opportunity.

Marie Leone is a senior editor at CFO.

Expendable You

What kind of severance package will kick in if a new owner kicks you out?

Those details are hammered out in a Change of Control Agreement, which every CFO should negotiate as part of a broader employment contract or a separate pact. Among the provisions you’ll want to protect yourself:

1. A year’s worth of pay, including base salary, benefits, and bonuses

2. Accelerated vesting of any stock options

3. Additional compensation to cover taxes


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