Our legal practice concentrates on negotiating and advising with respect to executive employment contracts and termination packages. Our clients are divided fairly evenly between our “niche” of non-profit executives in higher education and independent schools, and those CEOs and senior executives in commercial business entities which have made up our “bread and butter” for over thirty years.
Certain aspects of executive employment agreements are applicable to both groups of clients, but each group also has more specialized concerns. These particular concerns are important, and all the old clichés, such as “educational leaders are idealistic and therefore unworldly” or “business executives are only concerned about their own bottom line” do not reflect how individual (and thoughtful) our clients actually are.
Here are two issues particularly relevant to business executives (as opposed to educational leaders), and another issue common to both groups:
Incentive Compensation. Presidents of colleges and Heads of schools are naturally interested in saving for retirement, so an educational executive’s contract should focus on various retirement and deferred compensation plans. However, business executives and for-profit CEOs often receive the greater (sometimes much greater) portion of their annual compensation in bonuses and other short- and long-term incentives, which is not true in the academic world.
Additionally, the compensation of business executives is often directly tied to the financial success of the commercial enterprise they lead. This is another difference from educational executives, where a decline in enrollment or a drop in the institution’s endowment may pose a problem for an educational leader and even threaten his or her job, but rarely leads to a reduction in compensation.
We frequently negotiate both types of compensation models, and understand the different types of plans and formulas by which they are governed.
Serious Travel. For all senior executives and CEOs, travel is a fundamental part of their job descriptions.
For educational leaders, however, usually the sole relevant point in contract negotiations is whether and/or when the executive is permitted to fly business or first-class on academic and fundraising trips. (Smart educational institutions recognize that an upgrade of airfare, which saves wear and tear on a college or university president or head of school, is, given the relentless pressure of these jobs, a wise investment which “pays for itself”; first-class is also where one is more likely to meet new donors.)
By contrast, business executives and CEOs may have to do more than fly across the country for a meeting or visit to an industrial site. Sometimes, they will be obligated to endure a short or longer relocation from one area of the country to another, or even overseas. For example, in a company with significant commercial operations in Idaho and Florida, it can become necessary for a CEO or other senior executive to spend a given number of months per year in each place, or to move between sites of the company’s operations on a regular basis. “Travel” takes on a different meaning in this context, and we are called upon to negotiate over much further reaching issues than airplane seating, including company or rental housing as well as transportation and lodging for the executive’s family over lengthy periods of time. In these circumstances, substantial accommodations in different places become an important detail of the executive’s employment agreement. This even may be a reversal of the customary situation where a business executive pays for his or her own residence, while a college or school CEO is required to live in the “President’s (or Head’s) house” (often a valuable perquisite for academic leaders).
Know Your Proposed Employer! Here is a salient issue for both business and educational executives, maybe the key issue in advance of signing any executive employment agreement: the necessity for an executive, whether the incoming CEO of a commercial enterprise or the person who has been tapped to lead a university, college or independent school, to do as much homework and intelligence-gathering as possible about the prospective employer and the entity to which they will be going before they sign the agreement.
This issue is sufficiently important that it deserves, and will receive, full consideration in a separate column of its own next month.