Defining Executive Benefits
To ensure the fair compensation of key employees, a company’s board of directors will normally draft executive compensation and benefit plans. While the specifics vary greatly from company to company, compensation for executives often is contingent upon the success of the company. Indeed, executive compensation comes in the form of stock or stock options. Since they cover a vast area, drafting a sound executive agreement is no easy task, and often requires the counsel of a skilled employment lawyer. When drafting these agreements for executives, company directors will oftentimes address the following six areas:
Base Salary
Many executives do not receive compensation based solely on stocks and commission; indeed, many have a base salary that is bolstered by the success of the company. A board of directors will have to set an executive’s salary commiserate with his or her responsibilities for the position.
Short-term Incentives
Short-term incentives usually allow an executive a quarterly or yearly timespan in which to achieve the goals. These incentives promise to award the executive on a number of things: from implementing an effective new corporate strategy to improving profit margins or generating revenue for the company.
Long-term Incentives
Long-term incentives can span over any number of years, usually three to five, and oftentimes include reaching a predetermined targeted level of performance for the company. Long-term incentives are generally rewarded as stock-based compensation, such as stock options, restricted stock, and performance shares.
Employee Benefits
With little variance to other benefits packages throughout a company, employee benefits for executives cover health/dental insurance, disability, and life insurance, but are generally set apart by their retirement plans. Retirement plans for executives are not guaranteed by a trust, such as a 401(k), like that of other employees, which can prove problematic should an executive’s company file for bankruptcy.
Perquisites
While they may seem like luxury items, perquisites are factored into executive agreements in order to maximize the work time of an executive. Drivers, home communication systems, and company planes for travel all keep executives working past regular scheduled business hours or during their commute. Such benefits are typically reserved for major national and international company executives.
Severance/Change in Control Payments
In the event of a voluntary or involuntary termination, severance agreements offer the company protection through non-compete agreements which aim to keep employees or executives from moving to competitors or opening their own business in a certain area. Similarly, change in control payments offer executives compensation should they lose their job as a result of a merger or a sale, and are oftentimes referred to as “golden parachutes.”
Contractual Issues
No matter how meticulously a board of directors drafts an executive agreement, a breach of contract can still occur when an employee attempts to leave a company. Such contractual disputes can be just as common with executives as they are with other employees. Our Cherry Hill employment lawyers note that such disputes require apt legal counsel in order to be brought to a sound conclusion.