Big Red Car here. Going to be a beautiful day here in the ATX. The Boss was out of here early and had coffee with a pal. I got to take a quick ride over to the coffee shop and had a nice chat with a very attractive little Mercedes convertible. What a doll. Hehe, behave yourself, Big Red Car.
So, The Boss was thinking about the C level Employment Agreement again and was going to start peeling it back for ya’ll.
Every so often The Boss will take one of the headings and discuss it in detail. Today we will talk about defining the “position”. Go look at yesterday’s blog post “C Level Employment Agreement Provisions” <<< click on the link. You will see a series of headings.
The Employment Agreement should define the nature of the position that is being offered and accepted in sufficient detail that neither the CEO or the Board is confused as to expectations. Here are some important considerations:
1. Make sure that the Employment Agreement appoints the CEO to a position that is called for in the company’s Bylaws. The Bylaws will state how the company is to be lead. Make sure to sync the Bylaws and the Employment Agreement.
2. Spell out the duties of the CEO carefully as it relates to specific tasks such as preparing an annual business plan, including a budget, for the Board’s review and approval by a date certain. Enumerate all of the duties in great detail.
This is the core of this section of the Employment Agreement. Sweat the details now and avoid any confusion in the future.
Coordinate this with the Board Charter which should spell out the administration of Board meetings.
3. Discuss the CEO’s authority as it relates to running the company, hiring practices and committing capital. As an example, if the Bylaws call for the Board approval of the appointment of a Chief Financial Officer, not an unusual provision, can the CEO fire the CFO without Board approval?
4. Define the relationship between the CEO and the Board in particular stating that the CEO is the Board’s primary or sole contact with the management of the company. This is both a good practice and a practical consideration.
Much confusion and chaos can be avoided in the future if it is spelled out clearly that it is not the Board’s role to be conducting business with the CEO’s subordinates.
This should not be construed to suggest that the CFO would not be attending the Audit Committee meeting but it should make it clear that the Audit Committee should not be reviewing operational considerations with the CFO in the absence of the CEO.
5. Give careful consideration to the level of effort that is required of the CEO position. Can the CEO undertake other business endeavors while employed as CEO? Is this to be the primary and exclusive business endeavor of the CEO? State the obvious in detail. Get what you are paying for and get paid for what you are committing to.
6. Can the CEO serve on other public, private or charity boards while employed as CEO? What about existing commitments, can they be renewed? Must he resign from boards on which he currently serves? This is an issue related to available time and time commitments. Being a CEO is a huge time commitment and it is unfair and impractical to dilute that effort.
7. Are there to be restrictions on what kind of investments the CEO can hold in other companies or securities? The investments should be segregated and considered with an eye toward whether they are passive or active investments; or, whether they are in the same industry as the company.
These considerations provide the base level definition of the position and are a good starting point for defining the position but there are several others which will also need to be wrapped into this section. We will discuss them in a future blog post.
Other considerations related to “position”
These other considerations include the following specific items:
1. Does the CEO get nominated to and elected to the Board of Directors as a condition of his employment?
2. What are the CEO’s physical work conditions?
3. Does the company provide an executive assistant and what duties can she perform for the CEO beyond the normal company related duties?
4. What are the rules as to the CEO’s physical location from time to time? Can he work remotely?
5. What are the provisions for annually appraising his performance? This, of course, will be tied into and interwoven with the issue of compensation and the annual review of compensation.
All of these things are important and should be dealt with in the Employment Agreement.
Wow, says the Big Red Car — that’s a lot of stuff to figure out. But I guess it’s a good idea to get it all figured out on the front end, no?