Transitions in Employment

Archive for the ‘Severance Agreements’ Category

When it comes to financial advisers switching firms, the old adage – loose lips sink ships – holds true.

When a financial adviser is plotting to jump ship, the temptation to tell clients is often strong.  Stifle it, and stay mum.

***

New firms often don’t appreciate being drawn into lawsuits or arbitration over solicitation. Clients don’t like it, either.

“You’re also potentially subjecting your clients to be asked to testify as to the nature and scope of your communications,” said David Harmon, an employment attorney and partner at Norris McLaughlin & Marcus in New York. “If you want to keep yourself out of trouble, you don’t inform clients.”

For full article, click here to go to the Wealth Management Journal for the Wall Street Journal.

Part I: Negotiating the Employment Package That Is Best for You – The Fine Print Matters

6. Be Sure of the Meaning. An illustration of the importance of the meaning of the terms is found in the definition of “active working status.”  We recently handled a negotiation for an executive who had received an employment agreement that provided that only employees who are in “active working status” on the bonus payment date would be eligible to receive a bonus for the prior performance year. Without fine-tuning the definition and its relationship to the termination provisions, the executive could have been denied compensation and benefits that had accrued during his years with his employer, regardless of the reason for termination.
7. Review the Restrictions. Now, more than ever before, companies need to protect their trade secrets, confidential and proprietary information, property, customer and employment relationships through the imposition of restrictive covenants. Employers take various approaches to these covenants. These restrictions are in effect during the employment relationship and post-employment; sometimes only during the period in which severance is paid, sometimes regardless of whether the executive is on the sidelines for months, or in some cases, years. The goal for the executive is to limit the time and geographic range of the restrictions and confine them to certain competitors or customers. Essentially, the executive has to determine the extent to which he or she is comfortable with signing away post-employment flexibility should the employment relationship fail.

Negotiation of the compensation package can be the most significant part of a career move. Remember to examine the “fine print,” and seek counsel as needed, to understand the interplay of the provisions of the employment agreement, and accompanying equity and benefit plan documents, to ensure a successful employment relationship, or the best protection if things don’t work out.

5. The Termination Scenarios.  Defining the circumstances under which the employment relationship can be terminated is essential. Considerable attention should be paid to the definitions of “cause” and “good reason.” Not focusing on the details of the definitions can have costly ramifications. Employers seek a broad definition of “cause” to afford greater latitude in terminating an executive and avoiding an obligation to pay severance.  In response, the executive strives for a narrow definition of “cause” that avoids discretionary and qualitative terms. On the other hand, the executive should strive for inclusion of provisions that enable him/her to trigger a termination for breach by the employer and still receive maximum contract benefits and payouts. This is typically referred to as a “good reason” termination. It is also helpful to consider how the executive will be treated in the event a change in control of the employer occurs.  And all termination must be viewed against the backdrop of IRS Code Section 409A, creating a labyrinth of possible tax liabilities.

For steps 1 through 4, please see posts:

Part I: Negotiating the Employment Package That Is Best for You – The Fine Print Matters
Part II: Negotiating the Employment Package That Is Best for You – The Fine Print Matters 
Part III: Negotiating the Employment Package That Is Best for You – The Fine Print Matters 

What a deal!! Duke Energy inks an employment agreement with CEO (a deal that was contemplated in its merger agreement with Progress Energy) and one week later, he is terminated.  Under his severance arrangement, he is slated to receive severance payments in the neighborhood of $44 million, including severance, cash bonus, special lump-sum payment, and accelerated vesting of his stock awards (see “Behind Duke’s CEO-for-a-Day,” Wall Street Journal, page B6, Friday, July 6, 2012). His lump sum payment is due provided he cooperates with Duke and does not disparage the company.

Were the parties acting in good faith?  Did the Board meets its obligations?  More to come, I am sure.

The compensation package of Eugene Isenberg, former CEO and now chairman of Nabors Industries, Ltd., including a proposed $100 million termination payment, illustrates the far extreme of executive compensation.  While institutional shareholders brought suit to challenge his compensation, wasn’t there due diligence before investments were made?

Read the rest of this entry »

Wall Street compensation does not appear to be the only target these days as foundations are coming under increased scrutiny.  Handsome severance packages have been provided within the four corners of executive employment agreements.  The Wall Street Journal reports such is the case at the National September 11 Memorial and Museum.  Query whether the net impact of these packages will be a reduction in funding and/or contributions in the non-profit arena.

Second Severance Deal at 9/11 Group

The jury’s decision in favor of Donald Drapkin, former employee of MacAndrews and Forbes, highlights the nuances of contract language - distinctions between substantial performance and material breach.  To avoid cases like these, why not allow for a reasonable period within which to return company property, and not penalize the employee if items are discovered months if not years after the severance has been paid, provided good faith can be shown on the employee’s part. We will have to see if the judge sets aside the verdict.

Perelman’s MacAndrews & Forbes Loses $16 Million Drapkin Verdict

What does the dispute between MacAndrews & Forbes and Donald Drapkin, its former Vice Chairman, indicate to other executives who sign severance agreements? That company property should be returned and confirmation of such return should be obtained by the executive, that companies should have solid procedures in place to monitor the possession of confidential information by employees, and that post-employment obligations are enforceable — depending on how they are drafted and the particular facts of the case. This case should be interesting as it presents specific contract clauses and evaluates the conduct of the former executive. We will see what the jury finds regarding whether the company was justified in withholding payment under Drapkin’s severance agreement due to its claim that he failed to comply with his post-employment obligations, including returning company property and soliciting an employee.

Perelman’s MacAndrews Faces $18 Million Back-Pay Trial ‘About Fairness’