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Birmingham Bar Associations Bulletin Summer 2015

Term of Employment and Renewal Provisions Th e term of employment may be “atwill” or “fi xed.” Generally, employers prefer an at-will relationship, while a fi xedterm is typically better for the executive. In addition to setting forth the initial term of employment, the employment agreement should clearly spell out whether, and, if so, how it is renewable. Th e executive is much better served by having a renewal provision, and the one which is the most favorable to the executive is an “evergreen” provision, which states that as of each anniversary date of a fi xed-term agreement, the term of employment is automatically extended by one year. Job Title, Reporting Relationships, Duties and Responsibilities Th e employment agreement should state the executive’s job title and reporting relationships as well as the executive’s duties and responsibilities. From the executive’s perspective, the agreement should both identify the positions to which the executive reports and the positions that will report to the executive. Th e executive’s job responsibilities should be spelled out in detail. Th e more precision, the greater protection for the executive against unwanted demotions and eff orts to force the executive out by assigning lower-level tasks. If the employer seeks to retain discretion in the assignment of tasks, the agreement should provide that any new tasks will be similar in level of responsibility, visibility and prestige to existing duties. And, the executive should resist the employer’s preference for fl exible language (e.g., “all other duties assigned by the employer”). Th e agreement should address the location(s) at which the executive is to work. If the executive is concerned about being transferred to other locations, then counsel should negotiate limits on the employer’s unilateral ability to make such transfers. Th e agreement should also address payment of relocation costs in the event a transfer requires moving the executive’s residence. Finally, the executive may want to consider delineating other aspects of the executive’s employment, such as involvement on the employer’s board of directors or seeking specifi c permission to perform outside activities such as board memberships with other for-profi t or non-profi t organizations, commercial enterprises or charitable endeavors. The Executive’s Compensation Th e starting point is to set forth the executive’s base salary. It is important to negotiate for minimum annual increases in base salary as well as seeking a minimum “fl oor” level. Next, the employment agreement should spell out the bonuses that the executive will receive. Th ose may include signing bonuses and short- and long-term incentive bonuses. With respect to any signing bonus, the executive should try to ensure that it is not tied to a minimum period of service with the employer and to avoid language requiring a payback of the bonus if the executive is employed less than a certain number of months or years. Incentive bonuses may be based on the market performance of the employer or the personal performance of the executive, or both, depending upon the scope of the executive’s responsibilities. Generally, as to any bonus, the executive should seek Employment Law the utilization of objective standards to determine whether the bonus is paid and its amount, as well as a proration provision if employment begins or ends in the middle of a bonus year. Benefits and Perks Many employers provide, or can be persuaded to provide, “enhanced” benefi ts packages to executives, and to the extent that those are not described in the employment manual, the employment agreement should be used to spell out the enhanced benefi ts to which the executive is entitled. In addition, the executive should secure agreement of the amount of vacation and other absences and remember to spell out how vacation time will increase in tandem with increased service. Th e agreement should also enumerate the “perks” that will accompany the executive’s position. Th ese may include the employer’s payment for business expenses, accessories, professional fees and club dues, conferences and seminars, travel, corporate automobile and services such as fi nancial, tax and estate planning. Equity Compensation Increasingly, executives are receiving equity compensation in some form of ownership interest in the employer as an incentive for performance based on the achievement of specifi c performance goals by either or both the employer and the executive. Examples of equity compensation plans include restricted stock, incentive (qualifi ed) stock options, nonqualifi ed stock options, stock appreciation rights and phantom stock. Equity compensation typically “vests” over time. Th e terms of vesting may or may not be negotiable, depending on the type of equity and the terms of the equity Birmingham Bar Bulletin/ Summer 2015 15


Birmingham Bar Associations Bulletin Summer 2015
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