CEO Employment Agreement, Big Red Car, When Do I Get One?

Big Red Car here.  Hey, it’s cloudy here in the ATX.  Not convertible weather and the Big Red Car does not like days that are not convertible weather.  Going to be 82F today but on Friday it’s going into the 30’s.  Wow!

So one of The Boss’s brilliant CEOs asks The Boss:

“Hey, Boss, when do I get that Employment Agreement you spoke of in the C Level Employment Agreement series (link, ya’ll)?  When, Boss?”

To which The Boss replied:

“Whenever you want it, brilliant CEO.”

From whence the CEO Employment Agreement?

In the company’s Articles of Incorporation and corporate Bylaws, the company will outline how its corporate governance is to be conducted.  This is more a corporate Bylaws issue than an Articles of Incorporation issue.  You will remember we talked about the differences the other day — here.

The Bylaws will provide for the election of the Board of Directors and the Board of Directors will then subsequently appoint (typically by election) a Chief Operating Officer and a Secretary (typically the only required officers for a corporation though there could also be a vice president, chief financial officer or a treasurer).

When you — of yes, that’s YOU the founder and CEO — write the Bylaws you will add something like the following:

“The Board of Directors will elect a Chief Executive Officer and enter into an Employment Agreement securing his services for no less than a three year period.  The Employment Agreement will be negotiated by the Chairman of the Compensation Committee.  The Compensation Committee, by majority vote, will recommend the Employment Agreement to the Board of Directors who will approve it by majority vote.”

This simple phrase in the Bylaws will create both the authority and the obligation to enter into an Employment Agreement with the CEO.

The Board can annually — typically right after the Annual Meeting at which the Board Chairman, Board Vice Chairman, Committee Chairs are appointed — appoint the CEO.  If the CEO has an existing Employment Agreement which is then current, then the appointment may be just a formality, a head nodding ratification.

If the Board decides not to appoint the same CEO, then their action may be tantamount to a “termination not for cause” and the company would be obligated to pay the Severance Package required under the Employment Agreement.

[Pro tip:  Make damn sure that the appointment of the Board officers and the CEO are evidenced by a Corporate Resolution and the Corporate Resolution is filed in the corporate minute book.  Also, make sure to publish an annual “continuing resolution” which specifically recites the authority of the CEO to conduct the business of the company by authority of his appointment as CEO by the Board in accordance with the Bylaws.  This often becomes a legal issue in a legal confrontation as to the authority of the CEO to commit the company to contracts without which certain contracts might be argued as non-binding as the CEO did not have authority to enter into that contract.  This general authority satisfies that requirement.]

CEO Employment Agreement

We have previously discussed the most important elements of the Employment Agreement <<< link as noted below.

The Design of Compensation Packages for C Level Execs and Senior Management

C Level Employment Agreement Provisions

C Level Employment Agreement — Position

 C Level Employment Agreement — Salary

C Level Employment Agreement — Benefits

C Level Employment Agreement — Short Term Incentive Compensation

C Level Employment Agreement — Long Term Incentive Compensation

C Level Employment Agreement — Compensation, Something Special

C Level Employment Agreement — Managing the At Will Employee Relationship

C Level Employment Agreement — Termination

C Level Employment Agreement — Severance Package

C Level Employment Agreement — Change of Control Provision

C Level Employment Agreement — Parting Shots

 Look at each one in turn to refresh your memory.

Now, Old Sport, that’s all there really is to it.  It is imperative that you enter into that Employment Agreement as soon as you contemplate the first outside funding.  It is way too late to enter into an Employment Agreement after you have accepted funding.  Then the CEO has lost her negotiating power.

Remember, like any agreement, the CEO Employment Agreement can be modified or otherwise amended by mutual consent of the parties.  The CEO Employment Agreement does not have to be an impediment to conducting any kind of business.  Trust me on this one, Old Sport.

But, hey, what the Hell do I really know anyway?  I’m just a Big Red Car.