Using Career Advancement Covenants to Safeguard Non-Financial Executive Pay
This article was published in CEO World on May 26, 2021.
Suppose you have gone as far as you can in your present company and you are on the lookout for a more challenging executive role. An executive job offer came along and you are tempted by the opportunity, but you are in two minds because the salary is not what you had hoped for. What should you do?
Understand that cash, benefits, and equity aside, there are other ways to get rewarded for your expertise and hard work. Non-financial compensation can be very beneficial to your executive career and in the long run, can pay you big time! Here are some examples of non-financial executive pay:
- Assignments in a new field where you have little prior experience. This is an opportunity for you to learn on client, and beef up your resume.
- Face time with valued contacts
- Exposure for your work showcasing your skills in your industry
- Work in a desired location
- Access to technology or markets, back license of technology
- Other “perks” or benefits for doing work.
So if the salary is underwhelming, but the job provides valuable opportunities for career advancement, you should consider taking the job. However, you want to ensure that your expectations for these opportunities materialize in a timely manner and in the quality expected. If not, you want to be able to terminate with severance compensation. That’s where career advancement covenants come in. These covenants are executive contract terms that protect your interests when you take a risk to accept non-financial compensation.
Let’s take a deeper look at some of these forms of non-financial compensation.
Gaining Key Executive Experience: CFO in an IPO
Sometimes, to get to the next level, you need to have specific experience in a certain field. In one of my recent representations, my client was a C-level financial executive who had never led a company through an IPO, but was offered a CFO position from a company planning for IPO in the near future. Now IPO-bound companies usually hire CFOs who have IPO leadership experience, but in this case, the company is trying to save money by hiring a well-trained CFO whose credentials are such the company feel he or she can do the job, rather than paying top dollar for a CFO with IPO experience.
For my client, the opportunity to gain IPO experience was something not to be passed up. Having this experience on his resume would open up many new job opportunities and take his career to the next level. Thus, my client is willing to accept an offer that provided much less than expected in cash compensation and negligible equity. However, I was able to help my client safeguard the non-financial objective of the employment by using career advancement covenants in his CFO employment agreement. Among the important covenants we inserted into the agreement was a special severance trigger – if the company has no IPO within 3 years, my client can resign for good reason and trigger payment of severance. This way, he can promptly start looking for another company willing to offer him the chance to lead an IPO.
Gaining Key Executive Experience: First Time CEO
In another recent representation, my client had been a mid-level executive for almost twenty years. The client’s company was solid. Her career and compensation there was rising. But she wanted more.
Through some contacts, my client was offered a CEO position with a well-funded startup. This was a breakout position that opened new possibilities for her career. In this case, my client did not need to take a cut in pay. However, she was trading job security for the unknown.
So in this case too, I counseled inclusion of covenants to best secure the career advancement being sought. Often, executive contracts will state the executive has duties normally associated with the position. However, for this case, before signing off on the startup CEO contract, we inserted specific duties and authority my client was to be sure to have and to exert in her position as CEO. This would give her the experience that she sought. Once again, we backed it up by providing that any diminution of those duties or authority would trigger her ability to resign for good reason and trigger payment of severance.
Achieving Other Valuable Career Objectives
For some executives, advancement in career may depend on expanding their network of relationships or even partnerships. Getting face time with valued contacts such as important players in their industry or targeted industries will be your desired form of non-financial compensation. If an employer is well-situated in this network that you want to be a part of, you would want to take the job.
Where contacts are important, the executive contract may insert that you report to the Board as well as the CEO, or report to others important to you. On some occasions, reference to key individuals are placed in agreement covenants. Thus, if those individuals leave the company, it could trigger resignation for good reason and severance.
Sometimes, the career objective is to achieve greater notoriety in your field. Hopefully, with that notoriety will come new opportunities since it would be easier for potential employers to find you if you are well known in your industry or in your area of expertise.
Thus, if you join a company that not only produces great work but also publicizes it or gains lots of recognition for it, you’ll get the benefit of getting greater exposure for your work as well. This will help boost the quality of your resume because your publicized work will look much more impressive to future employers. For example, if you are a Chief People Officer, and your employer annually participates in Best Places to Work competitions and wins awards, you will get exposure and recognition for your leadership. Similarly, if your new company participates in key trade shows in your industry or has a strong website and digital marketing presence, either of these might also aid your notoriety in the field. In each case, executive employment agreement covenants should mention these items that attracted you to the company.
Working in Desired Locations
Your experience will be more valuable if you work where the action is. If you are a life sciences or biotech executive, you may wish to get a job in Boston. If you are an executive in the oil industry, you may wish to participate in the fracking boom in North Dakota.
Or perhaps you are a global executive, then working in a country that you have not been before would boost your resume. Alternatively, you may find value in building experience in different target markets.
In each of these situations, you wish to include in your executive contract, a term that stipulate your desired work location and remedies if that term is breached.
Taking the Long View in Executive Employment
As an executive, especially if you are still climbing the corporate ladder, consideration for your career advancement can be even more important than your salary, benefits or even equity. Sometimes it is worth it to tradeoff some short-term financial gain for better long-term career prospects.
To make the right choice, it’s always worth getting professional counsel about the tangible and non-tangible benefits before signing up for a new executive job offer. An experienced executive employment agreement lawyer will help you design an executive contract that not only maximizes your executive compensation package but also assure your career objectives are safeguarded. If you are going to trade financial gain for a career objective, it is wise to assure that the contract crafted gives you the best chance to achieve the objective you seek.