Executive Compensation or “Executive Comp” is a specialized area of employment and business law dealing with the pay, bonuses, and perquisites “perks” provided to executives and managers. Companies rely on carefully worded contracts that attempt to strike a balance between providing incentives to executives to perform at their very best, while protecting the company from liability if the executive is terminated or resigns.
Executive Comp requires a particular level of expertise, not only with respect to employment law, but corporate governance, shares, pensions, and benefits. On their face, these contracts can appear generous, but attention must be paid to the fine print. Such contracts can include some of the following instruments which are not always easily understood and seldom agreed upon in litigation:
- Claw-backs – clauses which allow the Company to take back bonuses and other compensation in certain circumstances;
- Public disclosure – in the case for public companies;
- Long-term incentive plans – where payments are deferred and paid out upon a carefully defined future event (such as the sale of the company or acquisition of a certain number of shares by a third party);
- Cliff vesting – where no shares vest until the anniversary of the commencement date;
- Restricted Share Units – shares that are issued to the executive but are worthless until they vest (often in 1/3 increments over time);
- Non-competition clauses – clauses which prevent the executive from working for a competitor after employment has ended;
- Golden handcuffs – payment of salary to the executive upon termination to last them through the non-competition period; and
- ESA termination clauses – clauses restricting pay in lieu of notice to the statutory minimum.
By its very nature, Executive Comp is multidisciplinary and complex. Executives may require the expertise of corporate and transactional lawyers who understand the nuances of the shareholder agreements and corporate governance issues, while employment lawyers are best placed to advise on salary and the bonus issues. Finally, if matters become litigious, executives may require the services of experienced employment and trial counsel. The team at Mann Lawyers LLP, comprised of corporate, transactional, and litigation lawyers, is well-placed to assist executives at any stage in their career.