Negotiating Executive Employment Contracts: Promises and Pitfalls
One of the greatest assets a company has is its employees, which includes a company’s senior leadership. Most companies are not able to consistently find high quality leaders with the right combination of visionary talent and business savvy within their own ranks, and it is very common for them to seek executive talent from the outside. Finding the ideal candidate is only the first step to success, however, as it is equally important to ensure that the employment contract between the executive leader and the company protects all parties involved in the event the relationship sours down the road.
Senior executives often believe that they are the best measure of their own talent and what that talent is worth. This does not mean that contract negotiations between the executive and the company seeking their leadership should be one-sided. It also does not mean that a company can make promises to the executive that it cannot keep. Business leaders must be aware of the duties that they owe to their shareholders, employees, and customers to make decisions for the betterment of the company. Making promises to provide a rising star executive with whatever he or she demands in order to “close the deal” is a recipe for disaster down the road. Not only will the executive expect (and demand again) that their agreed-upon terms will be delivered, but he or she could bring a lawsuit to enforce the terms if they believe that the company is in breach of contract.
It is a well-worn, but relevant phrase that should be followed when negotiating an executive’s employment contract: Honesty is the best policy. Corporate leaders should be upfront and honest about their expectations for the new executive and provide guidance as to what the executive can expect with regard to control, authority, and resources that will be provided to help the executive fulfill those expectations. While many companies may not like to put all the terms of an executive leader’s employment agreement in writing, the fact is that a written representation of the agreement between the parties will serve to protect both the executive and the company. Even if the relationship proves to be beneficial to both parties, if the executive leader decides to leave the company, the employment contract will ensure the departure goes smoothly and without either party having more advantage over the other.
Companies seeking to draw top executive talent must also be aware that negotiations will take a more personal tone than other types of business transactions. In order to enter into a successful contract that can lead to prosperity for both parties, a company’s leaders should engage with the executive directly and truly listen to the executive’s employment needs. It is important for both sides to feel they are making a connection and that the executive is interested not only in furthering his or her career, but also furthering the mission of the company. Taking a hard stance during negotiations may set the tone for all future communications the executive has with senior leadership and lead to bad blood (or a lawsuit) later on in the relationship.
If you have any questions about negotiating executive employment contracts, contact the professionals at Garcia & Gurney. Our attorneys are skilled at contract negotiation and can guide your company’s negotiations to ensure that you attract the right person to lead your company to success.