Negotiating Executive Compensation Packages And Employment Agreements
You made it through all the interviews and passed the reference check. Now it’s time for negotiations and not just about your salary. The offer stage of the hiring phase is when you should be thinking about what happens if things go south with your new employer. Who will own the intellectual property you create? What about the customers you brought with you? What about the new customers you worked so hard to recruit? What about post-employment competition? Will you be paid for your accrued, unused vacation? The less uncertainty, the better for everyone involved.
Executive compensation is a complex field of corporate governance, combining aspects of employment, business, and tax law. Executive pay structures are entirely different from traditional hourly or salaried employees. They include several other compensation forms typically based on company-wide performance rather than individual results.
To be sure, there is no standard form of executive compensation. Each company chooses to reward its executives in a way that works best for their particular needs. As a result, executive compensation agreements are typically over-complicated and difficult to understand.
It is essential to understand the many different types of executive compensation in this area of law. A few types include:
- Base Salary – A predetermined annual salary for an executive that is paid in cash monthly or bi-weekly, similar to other salaried employees;
- Short-Term Incentives (Bonuses) – Typically, cash paid in addition to the base salary for achieving a company’s short-term business strategy. Bonuses are usually achieved by reaching a set of company-defined goals on an annual basis;
- Long-Term Incentives – Typically, the most significant component of an executive’s compensation and is usually paid in stock, stock options, restricted stock, or performance-vested stock. The performance period typically runs between three to five years and is generally based upon long term stock growth, return to shareholders, or other similar measurements of long term growth;
- Benefits – This can include the same benefits offered to salaried employees, such as health insurance, life insurance, or retirement plans. Most executives are offered unique retirement plans that are not federally secured and are always at risk of total loss if the company enters bankruptcy or is unable to pay them, but in turn, offer significantly more return in the long term;
- Perquisites (Perks) – Usually structured based on an executive’s value to the company, demands on time, and other unique conditions that other salaried employees do not experience. These perks can vary from a reserved parking spot to the use of company aircraft for travel; and
- Contingent Pay – Companies usually award executives a severance clause in the case of involuntary termination, with some exceptions for termination for cause. Some companies also offer executives change-in-control agreements that compensate the executive in the event of a merger or sale. Companies design these agreements to allow executives to act in the best interest of the company rather than their own careers.
Companies can use any combination of the above to compensate executives. They can also set various targets/goals for executives to meet to be eligible for different compensation types.
At Hoyer Law Group, PLLC, our experienced attorneys can help you understand what types of compensation you are entitled to under your executive compensation agreement. We can help you negotiate with your employer to ensure you’re fairly compensated and that your responsibilities and targets are well-defined and realistically attainable.