Negotiating Executive Employment Agreements
Often prior to entering into an employment agreement with an executive, both the Company and the Executive wish to outline their wishes in the form of a term sheet. This helps the parties negotiate the spirit of major portions of what will be the employment agreement without combing through a long agreement.
Typically the term sheet will include the following (not an exhaustive list):
- Name and Position of Executive
- Compensation – Is there a base salary? Bonuses? What are targets? What about equity compensation?
- Expenses – Will the Executive be reimbursed for reasonable expenses?
- External Interests – Is this a full time gig? In many startups, executives may have outside interests. This should be clarified.
- Benefits and Vacation
- D&O Insurance and Indemnification – Will the Company be required to maintain D&O insurance? Will the Company indemnify its officers?
- Termination without Cause or Resigning with Good Reason – What happens when the Company terminates the Executive without cause or if the Executive resigns with a good reason (as in the case of constructive dismissal)? Executives may wish to set the severance payout up front. The Term Sheet should also briefly define what constitutes “Cause” and “Good Reason”.
- Work Product – Who will own any inventions or work product created by the Executive or his team related to the business of the Company?
- Restrictive Covenants – Will the Executive be restricted by any non-competes or non-solicits post termination?
- Confidentiality – What are the Executive’s obligations regarding confidentiality during and post employment.
Negotiating these terms prior to the drafting of an executive employment agreement may lead to a smoother hiring process.