Employment Agreements In Different Industries,
Or Why the Employment Contract of a Wealth
Management Advisor Looks Very Different
From That of a University President
In past “Perspectives” as well as blogs on our firm’s website, I have written about some of the issues which an executive employment attorney handles on a regular basis: deferred compensation; the definition of “Cause” for termination; adequate severance pay when an executive is terminated without Cause; the changing landscape of non-competition agreements.
These and a number of other concepts appear regularly in most executive employment agreements regardless of the industry, business or even non-profit sector in which the executive is being hired to work.
However, just because there are certain concepts and contractual clauses which are common to employment agreements across a variety of commercial settings, experienced executive compensation lawyers understand that there are also key differences among employment arrangements because of the particular industry setting. One size most decidedly “does not fit all” when it comes to employment contracts, so the executive and his or her counsel who fails to understand the differences — in both major issues and nuances — between, say, the contract of a wealth management advisor and that of a university president could be headed for trouble.
Let’s stick with this example since it provides a detailed illustration of my point that the particular nature of the underlying employment setting often dictates fundamental features of the executive’s contract.
Earlier this year, we represented a successful financial advisor who was moving from one large financial firm to another, with the prospect (and likelihood) of bringing along the advisor’s substantial “book of business.” The advisor had developed his client roster over many years of building intense personal relationships.
Many of the major financial firms, who constantly recruit and hire such established advisors and lose others who move to different firms, decided some years ago that rather than constantly sue one another over the movements of these executives, they would adopt a “protocol” under which advisors can depart for another firm with their clients so long as certain confidential information remains at the former firm (which thereby may try to retain the business of at least some of the departing advisor’s clients).
The new firm is customarily willing to offer a meaningful incentive to hire the established wealth advisor, correctly believing that it is thereby likely to acquire meaningful business as well. But the new firm does not want to pay an incentive and then have the advisor simply walk out the door and go elsewhere, so the new firm makes any incentive payment dependent not only on the advisor actually bringing a specified amount of business with him, but also on the advisor staying at the new firm for at least a minimum of (usually nine) years. This type of arrangement is documented in several separate agreements, all of which are highly complicated and tailored to both the industry setting and the particular financial facts. Meaningful dollars are usually involved, so woe to the executive employment attorney who is unprepared to deal with the complexities and nuances of these industry-specific deals.
By contrast, college presidents generally don’t have to worry about the elaborate entitlements, restrictions and licensing requirements of executives and managers in the financial services industry. Nonetheless, their own contractual arrangements in the academic arena involve peculiar issues which are totally foreign to a Wall Street contract, such as, merely for the sake of one concrete example among many, the need for the president to have his or her tenure rights spelled out in their employment agreements.
Yes, you read that correctly. Most college and university presidents have Ph.D. degrees and began their academic careers as teachers, researchers or both. And even though they may not have been in the classroom for some time, it is customary, when hiring the president of a college or university, to offer that president tenure in his or her academic discipline or a closely-related field (e.g., a medical doctor who becomes a college president might get tenure in the Biology Department) as part of the “package” of contractual emoluments offered to induce a talented candidate to accept the job. Here, too, knowing the particularities of the business setting is a crucial part of the employment attorney’s knowledge base.
Indeed, the executive compensation attorney must know more than the obvious differences (i.e., no one on Wall Street gets tenure) but the “specifics within the specifics.” For instance, tenure rights have to be dealt with in the college president’s written employment agreement, but must be knowledgeably drafted as well, because while it is the Board of Trustees of the College which is offering employment to the prospective president, customarily it is only the faculty which can grant tenure. There are a number of ways to handle this problem in creating the president’s contract (trust me on this).
Tenure rights are important to a university president; they make it harder to get rid of a president, since the ex-president usually has the “fall-back” of going onto the faculty at a top salary. If you don’t believe me, just ask the Trustees of the University of Virginia!
Even this single example of the difference between executive employment agreements in just two of the different industry settings in which we work should serve to demonstrate that sophisticated executive employment attorneys must intimately know and appreciate the various different “playing fields” in which their clients are engaged. In fact, part of the pleasure of our practice is learning about the different industries we serve.
Vive la différence!