Executive Employment Frequently Asked Questions
by Robert Adelson, Esq.
1. When is the right time to negotiate an executive employment agreement?
The right time to negotiate your executive employment agreement is A) when you are making a commitment, B) when you have something at stake, and C) when you want to confirm the terms that were offered. This can occur when you are relocating and will have to uproot a home and family. This can occur when you are giving up a secure position. It can occur if you are asked to give up clients or a practice built up over years. It can occur if you are asked to give up other deals you might take. Those situations call for negotiating fixed terms and getting a reciprocal commitment from the employer.
2. When do I hire an attorney? Who negotiates? How do we proceed?
Early in process is the best time. Certainly when you are discussing terms and certainly by the time a term sheet is offered you want have engaged your attorney. A big part of what you are hiring is the attorney’s knowledge, experience and creativity to propose terms you will want to include. By engaging the attorney at the early stage you have the greatest chance to let the attorney make an impact for you. Sometimes clients like to keep the attorney in the background as a sounding board and that’s fine. Other times clients like the attorney to do the negotiations – sometimes with the term sheet and most often with the actual employment agreement. By having the attorney negotiate it does allow for a buffer so the attorney asks the hard things and the client is in position to be the nice guy in a “good cop” / “bad cop” routine. You want to keep relations good between client and prospective employer.
3. What will legal services cost?
There is no cost for an initial telephone or internet consultation with me. This should enable you to further determine if the services we offer meet your expectations. There is no obligation from our initial consultation. Whether or not you hire me, your consultation will be kept confidential. Effective client service includes an understanding about the economic terms of the lawyer/client relationship. To avoid any misunderstanding, the fees are discussed in detail, at no charge, during the initial consultation. The exact terms of representation will be set forth in a written fee agreement we prepare at no charge to you. That agreement will set out my hourly rate for the work and set an initial retainer or down payment toward first work to be performed for you. Frequently, we are able to negotiate for the employer to pay all or part of our fees. In that event you credited dollar for dollar the amount paid by the employer against your outstanding balance.
4. What if the company won’t negotiate? Will raising issues or hiring an attorney kill the job offer?
If the prospective employer won’t negotiate the term sheet or employment agreement that may be a warning to you that this may be a difficult/controlling employer that you may not want to work for. You might still take the job but it’s a warning to you not to make too big a commitment because this might not work out. It’s also a warning that this employer may not value you highly enough. If an employer really wants you, they should negotiate. The company should respect you enough to negotiate. You on the other hand, in the course of your negotiations, vindicate their decision. In the negotiations you (with help of your attorney) ask the right questions, seek the right things. You show yourself to be a serious person who focuses on big ticket items – the kind of person the new employer wants on his team. Finally, even if you don’t achieve what we seek in negotiations, the effort is not wasted. There may come a time to revisit issues and we’ve laid the ground work.
5. Can I get a signing bonus? Can I justify a large pay increase?
Yes. If you are giving up something you need to be made whole. There may be vesting stock or options or other golden handcuffs. The new employer must offer the golden key to unlock those golden handcuffs by making you whole economically for what you sacrifice to take a new position. At the least you are leaving or are perceived to be leaving a secure position or other offers that are on the table, a commitment in terms of signing bonus should be sought. A large pay increase can be justified by the value you bring to the table.
6. What can I do to boost my salary and take-home pay? What changes should I be seeking in my employment agreement and compensation?
To get more benefits from your employment agreement and compensation, here are some of the questions you should be asking about your offer sheet or employment contract:
- How do I justify a greater base salary than offered?
- How do you I structure a greater bonus? Can I protect that bonus and assure it is paid?
- I want to avoid taxes. How do I structure compensation to avoid the tax hit and still get paid?
- Should I be receiving stock or options in the company? When does taking equity make the most sense? How much equity should I be seeking – how do I justify seeking more than what was offered?
- What types of stock or options can the company offer? What’s the value? How is this equity taxed?
- How do you avoid dilution? What other structuring issues do I need to address to protect my equity stake?
7. What protections should I seek for a change of control of company? What should I look for if the company is acquired? Can I get a retention bonus?
This can often be a difficult and tricky negotiation, especially with public companies. But protection against change of control should be sought and careful provisions drafted that avoid the pitfalls of tax provisions aimed at parachute payments. Change of control provisions should be included in your employment contract going in and later if an acquisition is in offing and your retention is desired a further negotiation over a retention agreement should occur providing compensation and incentives for your staying on.
8. Can I negotiate the NDA and non-compete? What should I be looking for there?
Non-disclosures and non-competes like the rest of your employment agreement are negotiable. Some over-reach and can be unenforceable. But a new employer may not want to violate the terms of a non-compete even if it is overbroad. So, it is best to try to prune back over-reaching agreements. The NDA should allow you to have the right to keep and use your knowledge going in and information you independently acquire. The non-compete should now bar you from your main field of work unless you are paid not to work.
9. Should I negotiate severance up front? What is fair to ask for?
Yes. You are making a commitment to the employer. You want a commitment back. If the employer wants to fire you without just cause, you want them to have to buy you out of your contract. You are compensated and given severance for loss of position, disruption and potentially harm to your career and a period when you may be out of work. You want severance that is a fair payment for those losses you suffer. For the employer, severance is just another cost of doing business, a cost that needs to be factored in when they determine to fire you without cause.
