Keys to Drafting Executive Employment Agreements

An Executive Employment Agreement is a binding agreement for employment between a company and an executive. In exchange for valuable consideration given by the company, the executive is agreeing to perform certain services. In contrast to an Executive Compensation Agreement, Executive Employment Agreements are binding, and by executing the agreement, both the company and the executive are promising to perform under the agreement's terms.

Executive Employment Agreements should begin with a "Recitals" section that lays out the overall purpose of the agreement. Each recital begins with "WHEREAS." Generally, the first recital should state simply that the "Employer's Board of Directors desires to employ Employee in an executive capacity and Employee desires to be so employed in that capacity." After any other applicable recitals, the agreement should say "THEREFORE, in consideration of the mutual covenants and conditions set forth below, the parties agree as follows."

The following are key provisions commonly found in Executive Employment Agreements:

1. Term. The length of the term of the agreement and the termination date should be provided. Also, any understanding regarding the option to renew the agreement, either on the executive's side, the company's side, or both, should be addressed. Most likely, the contract will be renewable or extendable under the same terms expressed in the agreement upon mutual agreement of the parties.

2. Compensation and Benefits. First, this provision should list the employee's annual salary. Next potential salary adjustments, either increases or decreases, should be laid out. The executive may be able to negotiate for an automatic salary increase if a certain event occurs, such as a merger, sale of the company, or accomplishment of certain goals. The employee's benefits package must also be described, including any stock options, health insurance, expense accounts, and vacation time.

3. Duties of Employee. The employee's position should be listed again, and his expected duties should be described in detail. If the precise services of the executive may be extended or curtailed by mutual agreement, this should be listed as well. Executive should promise to undertake the responsibilities for and devote his productive time, abilities, and attention to the business of the employer during the term of the Agreement, as well as comply with all federal, state, and local laws.

4. Duties of Employer. The employer should promise to pay all compensation, benefits, and allowances as set forth in the agreement. The employer should also agree to provide offices, and if agreed upon, "stenographic help" (a secretary) as appropriate.

5. Confidential Information. The employee must agree to keep confidential information confidential and to refrain from disclosing confidential information to any third party during the term of his employment and for a period of time following his employment, which could be anywhere from one to three years or longer.

6. Non-Competition. The company should require the executive to promise not to work, directly or indirectly, as an owner, partner, manager, officer, employee, or consultant for any business that competes with the employer during the term of the agreement and for a certain period of time afterwards.

7. Termination. The agreement should spell out whether or not the employee can be terminated only for cause, or for any reason at all. If only for cause, then cause must be defined. One possible definition for cause would be: (a) any breach of any material obligations owed to employer; (b) failure to follow a directive of the company's Board of Directors; or (c) conviction of a felony or any act involving moral turpitude. The severance pay that will be owed to executive upon termination either for cause or without cause should be provided.

These are the most important provisions of an Executive Employment Agreement. General provisions covering consequences of breach, assignment, modification, governing law, and severability should round out the agreement. For more information or to download part or all of actual Executive Employment Agreements, please visit the Agreement section of the Real Deal Docs website and conduct a search accordingly.