Reviewed and updated November 10, 2020
A clearly written employment contract can define the obligations and expectations of the company and the employee in such a way as to minimize future conflicts. Contract negotiations can be difficult, and high-level executives often hire a lawyer with experience in employment law.
The following is a checklist of key issues to consider when negotiating employment contracts for CEOs, CFOs, and other high-level executives.
Compensation is the most obvious key issue, but there are several levels of negotiating points encompassed here, including:
- Does the base salary increase each year of the contract?
- Is there a signing bonus, especially if the employee would lose options or other benefits for changing jobs?
- What quarterly or annual bonus is available? Is the bonus guaranteed, dependent on the achievement of milestones, or entirely discretionary with the board of directors?
- Under what circumstances can the employee's base salary be reduced? Some agreements give the company the right to reduce the base salary up to a certain percentage if the salaries of other employees in a similar situation are reduced in the same way (as might happen when the company is in financial difficulty).
2. Capital grants
Equity grants are often an important part of the employment contract, and key issues here include:
- Should the grant consist of tax-efficient incentive stock options, non-qualifying stock options, stock appreciation rights, or restricted stock units?
- If these are stock options, what is the exercise price?
- What is the vesting period for the allocation of shares? A typical scenario is the acquisition of four years with a one-year “life jacket”, which means that the employee must be employed at least one year before anything becomes acquired.
- What percentage of stock award is appropriate - a percentage of issued and outstanding shares or a percentage of fully diluted shares?
- If the employee is dismissed without cause, is part of the share allocation vested accelerated?
- How long does the employee have to exercise their options after termination of employment? The typical period is 90 days. But this can vary depending on whether the dismissal is motivated and not motivated, or the employee's voluntary departure to accept another job.
- Are there any acceleration of options during a business acquisition? Does this require an acquisition plus termination of the employee's employment (known as a “double trigger”)?
- Are the shares obtained during the exercise of an option subject to redemption in the event of termination of employment? If so, at what cost?
- Are the shares obtained during the exercise of an option subject to a right of first refusal? If so, under what conditions?
3. Field of use
The scope of the job and the responsibilities raise a number of issues:
- What is the employee's job title?
- What are the employee's responsibilities?
- Can the employee be demoted? Can employee responsibilities be significantly changed, decreased or increased?
- Is the employee guaranteed a seat on the board of directors as an employee?
- Where is the workplace?
- Can the employee be unilaterally relocated to another city, or only with the employee's consent?
- Is the employee allowed to participate in other activities (eg, director position on other boards of directors, participation in community activities)?
The various benefits available to an employee can raise a number of issues, including:
- Will the employee participate in all company benefit plans?
- Which of these plans should be in place for the employee? Are all payments for benefits the responsibility of the company?
- Health and medical care (including cover for spouse and dependents)
- 401 (k)
- Cafeteria plan
- Life insurance
- Stock option / allocation of shares
- Executive financial advice
- How much vacation per year is the employee entitled? Does unused vacation continue to accrue for the benefit of the employee and is it payable upon termination?
- How many accumulated vacation can be carried over to subsequent years?
- Special loans or forgiveness arrangements?
- Are any of the benefits taxable to the employee? Should the employee be reimbursed for the tax?
5. Duration and termination
The circumstances under which the employee's employment may be terminated and the consequences thereof will raise the following questions:
- How long is the job or is the job “at will”?
- What are the reasons for which the company can fire the employee?
- What, if any, are the conditions for compensation in the event of early termination?
- Under what circumstances can an employee be terminated “for cause”, for example:
- Conviction of a crime or any act involving moral turpitude;
- Commission of any act of theft, fraud, dishonesty or falsification of an employment file;
- Material breach of the employment contract which has not been corrected after notice;
- Failure to perform reasonable assigned duties; and
- Incorrect disclosure of important confidential company information
- Is the employee entitled to severance pay in the event of termination without cause? How? Is it a lump sum or payable over time?
- If the employee is terminated without cause, is the company required to continue to pay employee benefits or COBRA benefits for a certain period of time?
- If the employee is to receive severance pay, will he or she be required to sign a liability waiver for the benefit of the company? The employee will want this to be mutual release.
6. Reimbursement of expenses
Problems with the employee's entitlement to reimbursement of expenses include:
- Will the employee's business expenses be reimbursed within a specified time frame?
- Is there a car or car allowance, provided cell phone, or other similar amenities?
- Do moving expenses have to be reimbursed?
- Is there a relocation package available for the employee?
7. Protection of employee liability
The employee may wish to negotiate certain liability protection mechanisms, covering the employee performing services within the scope of employment:
- Does the company have directors and officers (“D&O”) insurance coverage?
- Do the articles of association provide for compensation protection for officers and employees?
- Does the company's corporate charter limit the liability of officers and directors to the maximum extent permitted by law?
- Is there a compensation agreement protecting the employee that covers:
- Indemnification protection for claims
- Automatic advancement of legal fees
- Protection even if the employee is no longer employed by the company? (Note the statutory limitations on compensation.)
8. Confidentiality restrictions
The employer will want confidentiality provisions in the employment contract:
- Many companies have a separate form of Employer Confidentiality and Invention Assignment Agreement that can be incorporated by reference.
- The employee should be careful not to use or disclose the confidential information of a former employer - the new employer will often want an undertaking from the employee prohibiting such use or disclosure.
- If there are confidentiality restrictions for the employee, are the following excluded from the definition of “confidential information”?
- Information which is or was publicly known, or which becomes publicly known through no fault of the employee.
- Information which is or has been obtained from a third party who had the right to disclose the information without restriction.
- Information obtained independently by the employee without reference to confidential information.
- Information that was already legally in the possession of the employee, or of which the employee was aware prior to the disclosure of the confidential information.
- How long do the privacy restrictions last?
9. Problems of attribution of inventions
Companies expect that all inventions or business ideas developed by the employee in connection with the activities of the company during the period of employment will belong to the company:
- What is the scope of the company's rights to the development of new inventions, trade secrets and ideas by employees?
- Are the provisions relating to the assignment of an invention in accordance with the applicable law?
10. Disability and death
Various problems arise during the death or disability of the employee:
- What is a disability event?
- What happens in the event of a disability? Does the employee continue to collect their wages and benefits for a period of time?
- What happens to death? Can medical and other benefits continue for a certain period of time for spouse and children?
11. Post-employment limitations
The employment contract can address various limitations regarding the employee after termination of employment:
- Are there any limits to the employee who solicits the employees of the company? For which period?
- Is there a commitment not to compete after termination of employment?
- For which geographic regions?
- For which period?
- What is the scope of the alliance?
- Are the restrictions applicable under applicable law? (Generally prohibited in California.)
12. Dispute resolution
Most employment contracts include multiple provisions dealing with disputes between the company and the employee:
- How are disputes resolved?
- Should confidential binding arbitration be the exclusive means of resolving disputes? (This can be beneficial for both the business and the employee.)
- In which city should disputes be brought if they are contentious or arbitrated?
- What is the applicable law?
13. Golden parachute
A "Golden parachute»Is a payment or other benefit guaranteed to an officer of the company in the event of the dismissal of the officer following a takeover of the company:
- In the event of a change of control of the company, does the employee have the right to terminate his employment and receive payment for the golden parachute?
- What are the tax implications of paying for the Golden Parachute? Will the company also increase the parachute payment to cover the tax?
- Will the company reimburse the employee's expenses for an IRS audit claiming additional tax?
14. Miscellaneous provisions
Good employment contracts have a series of “miscellaneous” clauses, including those that address these issues:
- Is there a clause on attorneys' fees where the winning party in a dispute would have the right to recover the fees of his hired attorneys? Or is it better for each party to be responsible only for the fees of its own lawyers?
- Does the employee declare and guarantee that their curriculum vitae and the information provided to the company are correct and complete?
- Are all conditions of employment reflected in the agreement, thus allowing a clause stating that there are no other conditions of the employment relationship?
Copyright © Richard D. Harroch. All rights reserved.
The biggest problem founders and small owners have is that they’re experts in their field and novices in what it really takes to effectively run a business. That’s what usually trips them up, sooner or later.
Don’t let that happen to you. Admit that you don’t know what you don’t know about , starting with these 15 tips guaranteed to help keep you and your company out of hot water. Some are straightforward, others are counterintuitive, but they’re all true. And some day they’ll save your butt.
Always make sure there is and will be enough cash in the bank. Period. The most common business-failure mode, hands down, is course out of cash. If you know you’ve got a cash flow or liquidity problem coming up, fix it now. You can’t fire bad employees fast enough. You just can’t. Just make sure you know they’re the problem, not you ( see next tip ).
The problem is probably you. When I was a young directeur, my company sent us all to a week of quality training where the most important concept we learned was that 90 percent of all problems are management problems. When things aren’t going well, the first place to look for answers is in the mirror.
Take care of your stars. This goes for every company, big and small. The cost of losing a star employee is enormous, yet business précurseurs rarely take the time to ensure their top performers are properly motivated, challenged, and compensated. Your people are not your kids, your personal assistants, or your shrink. If you use and abuse them that way, you will come to regret it. Capiche ?
Learn to say ' yes ' and ' no ' a lot. The two most important words business owners and founders have at their disposal are “yes” and “no. ” Learn to say them a lot. And that means being decisive. The most important reason to focus – to be clear on what your company does – is to be clear on all the things it doesn’t do.
It boggles my mind how little most entrepreneurs value their customers when, not only are their feedback and input among the most critical information they will ever learn, but their repeat business is the easiest business to get. Learn two words : meritocracy and nepotism. The first is how you run an organization – by recognizing, rewarding, and compensating based solely on ability and achievement. The second is how you don’t run an organization – by playing favorites and being biased.
Know when and when not to be transparent. Transparency is as detrimental at some times as it is beneficial at others. There are times to share openly and times to zip it. You need to know when and with whom to do one versus the other. It comes with experience.
Trust your gut. This phrase is often repeated but rarely understood. It means that your own instincts are an extremely valuable decision-making tool. Too often we end up saying in retrospect and with regret, “Damn, I knew that was a bad idea. ” But the key is to know how to access your instincts. Just sit, be quiet, and listen to yourself.
Protect and defend your intellectual property. Most of you don’t know the difference between a copyright, trademark, trade secret, and patent. That’s not acceptable. If you don’t protect and defend your IP, you will lose your only competitive advantage.
Learn to read and write effective agreements. You know the expression “good fences make good neighbors ? ” It’s the same in . The more effective your agreements are, the better your relationships will be.
Far too many créateurs d'entreprise run their business like an extension of their personal finances. Bad idea. Very bad idea. Construct the right business entity and keep it separate from your personal life. Know your finances inside and out. If you don’t know your revenues, expenses, capital requirements, profits ( gross and net ), debt, cash flow, and effective tax rate – among other things – you’re asking for dysfonctionnement. Big dysfonctionnement.
You don’t know what you don’t know. Humility is a powerful trait for précurseurs, and that goes for new owners, veteran CEOs of Fortune 500 companies, and everyone in between. More times than not, you will come to regret thinking you knew all the answers. Behind every failed company are dysfunctional, delusional, or incompetent business leaders. The irony is, none of them had the slightest idea that was true at the time. Even sadder, most of them still don’t. Don’t end up like one of them.
For every success you have in growing your market share, another business or other businesses will inevitably lose ground. Here are 11 quick and easy tips to gain a competitive advantage over your rivals and insulate yourself from the threat of new entrants in the market.
Of course, we all want to spark business growth and increase revenue. But the way you do this in a sustainable way is to focus instead on the building of a loyal database of avid fans. Content digital, paired with optimized website forms and éclairé mail automation follow-up is critical to business success. This approach builds trust by giving away free value before asking for someone’s hard-earned money. Not an spécialiste in creating optimized lead generation pages on a website ? No worries, use a trusted tool like Leadpages to make it happen.
Like it or not, folks out there aren’t searching for your brand, they’re just looking to solve a problem or find a particular type of product ( unless you run Starbucks or Adidas ! ) Don’t list all the benefits your product brings. Focus on the solutions. Explain to the customer in simple, straightforward terms how or why your product can help them or assist in the attainment of their goals. Consider FedEx’s iconic slogan : When it absolutely, positively has to be there overnight. This was a clear example of addressing widely-spread anxiety about the reliability of delivery services. Run through some market research to profile your target customer. How does your product or service – and your delivery and and price point – solve other people’s problems and make their lives easier or more pleasurable ?
Dropping prices doesn’t necessarily raise sales, for instance ( though it will definitely squeeze margins ). If you place yourself as a premium brand, then your customers aren’t necessarily value-driven in the first place, and cutting prices could even tarnish your brand. Consider this case study from Robert Cialdini’s seminal book ‘Influence : The Psychology of Persuasion’ : a jeweller sold out of turquoise jewelry after accidentally doubling, instead of halving, the price. The inflated price tag lent the product an unwarranted cachet ! If you are a de haute gamme brand, there are ways to optimize your pricing without lowering prices. For example, offer the quality-conscious customer an ‘exclusive’ benefit that your rivals do not or cannot provide. If you are at the value-driven end of the market, on the other hand, don’t assume slashing prices means incurring a loss. Low pricing can help you rapidly onboard a heap of new customers who may also buy other items in your shop and return again. Context also counts for a lot with pricing. The best way to sell a $5, 000 watch, for instance, could be by putting it next to a $10, 000 watch. Think strategically when it comes to deciding any price point.
Yes, it sounds obvious, but it’s so very important ! Whether consciously or not, people are more likely to buy a product if they like the sales assistant who’s attending to them. While the employee’s personality obviously has no bearing on the price or your product’s ability to serve their needs is irrelevant. Friendly customer-facing staff will always attract more sales. Be rigorous in hiring people who are genuinely cheerful, friendly and outgoing. Make sure your training program teaches them to adopt a consistently friendly approach that puts customers at ease and feel like a priority.
Say you’re a bricks-and-mortar store and you’re getting a rush of customers as closing time approaches… why not close up an hour later ? While this may cause disgruntlement among staff, solve this issue by getting creative with rosters. Monitor customer footfall throughout the day and week to identify your busiest periods, and staff people accordingly. You can also reduce headcount during quieter periods to offset the higher costs and longer sérieux hours created by your extended opening hours. It’s a win-win !
Even in the web age, some customers will always prefer to contact you by phone rather than fax or Facebook. While many online companies with tight margins eschew manned phone lines altogether, it’s worth giving customers the option of having a voice-to-voice conversation with your brand. By all means, slash the time and cost spent responding to queries by funnelling customers to standardized, pre-existing responses on your webpage ( i. e., FAQs ). But if their query isn’t listed in the drop-down menu of FAQs, then don’t make them click more than once more to find your phone number. Put it front and center on your digitale page, particularly if you’re a retail offering. ‘Live chat’ bots are an inexpensive way of offering real-time communication, too.
Why not give your happy customers a voucher with their purchase to redeem on your products and services ? If they love what you do already, they’re only going to love you more for this. It’s good for you because : It guarantees they will return to your store again. People hate to waste freebies ! When they return to your store to redeem their voucher, they may buy other items, too. If your business operates online, then the freebie could be strategically timed to coincide with a special sale. Oh, and guess what ? Chances are customers who have received vouchers or freebies won’t stay quiet about it either, so you could enjoy some positive buzz on social media.
Local businesses can arguably connect with their unique communities with much greater authority than any global chain. A local retailer, hair mobilier or gardening company can sponsor a kid’s sports team and offer deep discounts for OAPs at the same time. Some cinemas feature special ‘sensory’ screenings where parents can bring kids with autism ( who would normally be overwhelmed by busy, noisy environments ) to enjoy a movie in a relaxed, stress-free atmosphere. This reflects well on them and also guarantees them a loyal customer niche. Whatever you choose to do to support your community, make sure it authentically fits with your brand offering and business journey to date.
Social media is a great medium through which to build a solid relationship with customers – just don’t forget what ‘social’ actually means ! Soul-less corporate shop-talk won’t work on Twitter. Try to give your brand some ‘personality’ when you write updates or posts. This can bring its own risks, of course. But if you get it right, the benefits can be très grande. Develop a tone of voice that aligns well with your brand identity. Seek to inform, help, entertain or amuse. And most importantly – given the dire PR consequences – don’t patronize, try too to be funny, or tweet after a few alcoholic drinks !
Sometimes it’s better to be a master of one discipline than a jack of all trades. Admittedly, multiple revenue streams do spread your risk : if one falters, others can take up the slack. Nevertheless, consumers often associate ‘specialists’ with higher quality products or services than generalists. And with good reason, too : specialists typically invest all their resources into perfecting a solo product or service. So what should you specialize in ? to state the obvious, it should be something in which you excel. You could also pick something with rising or recession-proof demand which is resilient to technological change in which you possess a competitive advantage over your rivals or where there’s an obvious gap in your local market. Own it, whatever you do.
Don’t ever get too satisfied with your business. You can always improve – and improve you must ! Don’t get me wrong : without the odd moment of smug satisfaction, what’s the point ? Do relish in the successful launch of a game-changing product or take pleasure in positive customer feedback. But don’t let your customers hear you banging on about it time after time ! Be alert to the common element that has led to the downfall of countless hitherto thriving brands : complacency. Imaginative, nimble and innovative start-ups often do better than big market leaders that just got lazy. You may be the disruptive innovator today, but tomorrow you could be the complacent market leader with a tired model. So try to be humble and always strive to improve. Seek inspiration from other créateurs d'entreprise, from books and from seminars. The moment you think ‘mission accomplished’ is the same moment you become vulnerable to being usurped.
There are lots of ways in which you can improve your , and not all of them are complicated ! Try out the above tips or integrate them with your existing strategies, and let me know how you go in the comments below. Guest Author : Faye Ferris is responsible for the day-to-day management of the Dynamis APAC Pty Ltd offices in Sydney. She develops the DYNAMIS ne change pas of brands and their expansion into the Asia Pacific region as well as BusinessesForSale. com, FranchiseSales. com and PropertySales. com. If you have an interest in partnering up with Faye or advertising on any of these websites in the APAC territories, please do not hesitate to contact her on faye@businessesforsale. com.