Secure specific benefits and terms before accepting an executive position

Before accepting a position with a company, an executive should negotiate an employment agreement.

The executive should optimize the position by exercising "leverage," which will be a function of the need for the executive's experience and skills, his or her knowledge of the company and market, and his or her reliance on experienced legal counsel.

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Before negotiating an employment agreement, the executive must understand the market and appropriate employment terms for the position. It is also important to know the company's budgetary constraints as well as the compensation packages available to other executives in similar positions in the marketplace.

The employment agreement should describe the position, duties and responsibilities in detail and avoid such catch-all phrases as "and such other duties and responsibilities as the company may assign from time to time."

Company research is vital to understanding and offsetting the credit risks of accepting a position. If the company is experiencing significant financial difficulty, the agreement should include higher current cash compensation.

Other important aspects of the agreement are signing and/or retention bonuses, generally six months to one year, and severance benefits, typically six months to two years and six to 12 additional months if the termination is triggered by a change in control of the company.

The executive also must take advantage of alternatives for sharing in future company growth such as stock, restricted stock, stock options, phantom stock or stock-appreciation rights. According to current market guidelines, 5 percent to 20 percent of a company's value is typically set aside for these long-term, equity-based incentive compensation programs for key employees. Vesting schedules are usually attached to the equity units, requiring the company to meet performance targets or the executive to stay for a certain number of years. Vesting is often accelerated if there is a change in control of the company.

Severance packages should be negotiated up front when the most negotiating strength exists and both parties anticipate a long relationship. Too many executives discover the importance of severance benefits only when they are terminated and asked to sign a full company release in exchange for an inadequate severance benefit.

In addition, many companies require executives to enter into noncompetition, nondisclosure and nonsolicitation covenants. In this case, the severance benefits should at least equal the time that such covenants are in effect.

An executive's best tools in negotiating an effective employment agreement are knowledge and understanding of the company and the market, and reliance on experienced legal counsel. Using these tools can help executives protect themselves.