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VARIATIONS of EXECUTIVE EMPLOYMENT AGREEMENT

Experienced legal representation in reviewing, negotiating, drafting, improving executive employment agreements.

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Contact Neufeld Legal PC at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Executive employment agreements deserve considerable scrutiny and legal analysis given the financial implications emanating from the legal employment contract not being consistent with the negotiated specifics of one's intended employment arrangement. The differences in executive employment agreements may not be readily apparent to most people (often being very subtle and driven by legal terminology), yet the long-term financial implications to the executive employee can be staggering.

The legal technicalities at work in executive employment agreements is evident from the variable nature and multiple components of an executive's remuneration, which not only demonstrates the complexity associated with these particular employment contracts, and the importance of properly addressing each of these contractual components.

A. Compensation and Incentives

This is a central component of an executive employment agreement and often includes multiple elements:

  • Base Salary: The fixed annual pay.

  • Short-Term Incentives: Often performance-based bonuses tied to individual or company goals, paid out annually. These can be a fixed amount or a percentage of the base salary or company profits.

  • Long-Term Incentives (LTI): Designed to encourage long-term commitment and align the executive's interests with the corporate employer's success. Common examples include:

    • Stock Options: The right to purchase corporation stock at a predetermined price [more on stock options].

    • Restricted Stock Units (RSUs): The right to receive company stock once certain conditions (e.g., tenure) are met [more on RSUs].

    • Performance Share Units (PSUs): Similar to RSUs but tied to performance metrics [more on PSUs].

    • Golden Handcuffs: Large payouts offered to executives for staying with the company for a specified period [more on golden handcuffs].

B. Benefits and Perquisites

Executive agreements typically offer enhanced benefits beyond those provided to general employees. These can include:

  • Health and Wellness: Superior health, dental, and disability insurance.

  • Retirement: Supplemental pension or retirement savings plans.

  • Perquisites: Non-cash benefits often customized for the executive, such as a company car or private airplane access, club memberships, home security systems, or educational reimbursement.

C. Termination and Severance

This section is critical as it defines the conditions under which the employment relationship can end and what the executive will receive as a result.

  • Termination for Cause: Defines specific reasons for which the executive can be fired without a severance package (e.g., gross misconduct, breach of contract).

  • Termination Without Cause: Specifies the severance package the executive will receive if they are terminated for reasons other than "for cause." Severance packages can be significant, sometimes amounting to 24 months of pay.

  • "Good Reason" Clause: A common provision that allows an executive to resign and still receive severance if certain conditions are met, such as a material reduction in their responsibilities, salary, or a change in their reporting structure [more on good reason clauses].

  • Change in Control Clause: Also known as a Golden Parachute, this clause provides for a significant payout to the executive if the company is acquired, merged, or undergoes a change in ownership [more on golden parachute].

D. Restrictive Covenants

These clauses are designed to protect the company's interests after the executive's departure.

  • Non-Compete Clause: Prevents the executive from working for a competing company for a specified period and within a certain geographical area.

  • Non-Solicitation Clause: Prohibits the executive from soliciting the company's clients, customers, or employees after leaving.

  • Confidentiality/Non-Disclosure Agreement (NDA): Requires the executive to keep the company's proprietary and sensitive information confidential.

E. Other Key Provisions

Executive agreements also include important legal and operational details:

  • Duties and Responsibilities: Defines the scope of the executive's role, their reporting structure, and any limitations on outside activities.

  • Indemnification and D&O Insurance: Protects the executive from personal liability for actions taken on behalf of the company while serving as an officer or director.

  • Dispute Resolution: Outlines the process for handling conflicts, often specifying arbitration instead of litigation.

  • Intellectual Property: Clarifies who owns any patents, inventions, or discoveries made by the executive during their employment.

For knowledgeable and experienced legal representation with respect to executive employment agreements, and other legal matters pertaining to one's employment as an executive employee, contact our law firm by email at Chris@NeufeldLegal.com or by telephone at 403-400-4092 / 905-616-8864.

 

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