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Negotiating an executive employment contract


There are a few key times in your career when it’s a good idea to look closely at your employment contract and take the opportunity to negotiate the terms with your employer. These include starting a new role, receiving a promotion or perhaps when you’ve had a big professional win. While these are exciting moments and you’ll most likely just want to sign on the dotted line and get started, it’s really worth taking the time to ensure a new contract will protect you in the future.

When you’re a senior member of staff your employment contract is particularly important. Since many executives are not eligible for unfair dismissal protection, or covered by an enterprise agreement or award, having a contract that clearly sets out favourable terms for you is vital. This is likely to form the key legal protection for you.

Remuneration

Salary plus super is the first and most obvious place to start a contract negotiation, but it may be that other elements of the package hold considerable financial value, when you consider the compensation package as a whole.

Share plans and share option plans

Share and share option plans, or some other form of equity participation to keep your incentives aligned to the future performance of the business, may well hold significant financial potential. However, long-term incentives are exactly that, and so it is important to factor in the risks over the longer term, including any pre-conditions for payment, as well as long-term value.

Bonus

An annual bonus, by way of short term incentive, is likely to be a major part of your remuneration. Often, such bonuses are ‘discretionary’, leaving the matter of payment at all, or the precise amount of bonus to be paid, for your employer to determine. Guaranteed bonuses, which do not feature the word ‘discretionary’, are less common, although still feature in some executive contracts, and are most often negotiated to recompense an executive who would otherwise lose out on a bonus for moving role. It is helpful to agree in writing the key performance indicators (KPIs) around your bonus arrangement, to achieve greater clarity around what circumstances would entitle you to receive a bonus and at what level.

Pay review

Other terms around salary may also be agreed. For example, if your performance and salary will be reviewed at certain time periods. If so, will this be an annual process, or over a longer cycle? It is helpful to have in writing a detailed job description and clear KPIs against which to negotiate any increases to your salary, based on your performance and contribution to the business.

Other benefits

There may be some non-wage elements you can negotiate on, such as car allowance, leave, redundancy pay, private medical insurance, life insurance or total permanent disability insurance. A relocation package, and a specified class of air travel may be particular features for executives where travel is expected.

Notice period and termination

The notice period is a particularly important area of protection, and one which all too often can be a source of deep regret, if not negotiated when the executive had the opportunity to do so. The most favourable arrangement is if you can negotiate a long notice period from your employer, with a shorter notice period for you.

However, if this is not possible, a longer notice period remains particularly valuable for executives to help safeguard your financial future. As high income employees are not eligible unfair dismissal laws, a longer notice period is likely to be the primary protection, providing for continued income in the event your employment is terminated and you’re looking for a new role.

It is also helpful if you are able to negotiate other protections around termination. For example, contractual disciplinary and dismissal processes, which require warnings to be given over a set-time period, as well as hearings to make your case on conduct and performance, could then give you an opportunity to improve before the contract can be terminated.

Restraints of trade

Many executive contracts will include clauses around restraints of trade such as non-compete and non-solicitation. It is not safe to assume that a restraint of trade be enforced. Each case will depend on the particular circumstances and how widely drafted the terms of the restraint are in relation to that individual’s role. Some employers do try to deter employees with very broad restraints of trade clauses, even where these are unenforceable, but there will be greater certainty with more narrowly drafted restraint clauses, for example which apply to certain named competitors or for a short duration of time.

Firm your future

While it is certainly a delicate task, negotiating a contract does not need to risk a good relationship. It can highlight to your new employer that you pay attention to detail and are proactive about tackling issues, where you do so skilfully this will demonstrate your value to the business. It is often helpful to take advice in the background, while you preserve and manage the negotiation yourself. In this way, an employment law expert can professionally and discreetly advise you on what to look for in your contract and the best way to negotiate.

At the very least, it’s simply doing your own due diligence. You would expect to take advice on any important contracts you are managing on behalf of your employer after all, so it makes sense to take the same steps in relation to the most important business contract for yourself, you can rest easy knowing that you took an informed view on matters important for the financial future in your career.

Contact Shine Lawyers

If you’re negotiating a new contract it could pay to seek the advice of an expert. Shine Lawyers employment law experts are able to provide you with discreet, tailored legal advice around your contract.

Written by Shine Lawyers. Last modified: May 28, 2019.

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