The provision of a signing bonus takes into account three considerations important to a C-level or senior executive considering a new position: What a company pays up front can vary, depending on need and perceived immediate value received by the company. When determining the executive directors compensation, it is common for board members to look at the salary of similarly situated executive directors who manage a non-profit of like size, similar purpose, job duties, geographic area, although this is not an inclusive list of factors. When negotiating a new contract, sometimes a consultant is hired as a friend of the family who can be the go-between, insulating both sides, bringing creative knowledgeable solutions while allowing the chair and the CEO to continue to work together as a team. Hiring a new executive, especially a president or chief executive officer, is always a major undertaking for any association. Specifying aterm of years, also provides a natural opportunity to revisit whether therelationship is working out at the end of the term. The closer you tailor your request to what is standard, the more likely it is that the Board or CEO will agree. It is important, however, that the agreement specify that other factors may be considered by the board or its designated committee. and adenine man with a mission when it comes the contracts. Compensation has various elements, such as base salary, annual/performance bonus, signing bonus, equity grants, inducement grants, benefits, perquisites (e.g., car allowance), relocation assistance and reimbursement of legal fees the executive incurs in negotiating the executive contract. There are typically many other components in an executive employment contract that are beyond the scope of this article. It is fact finding normally done prior to a second round of interviews. But often a better measure is what the most recent equivalent hire for a similar nonprofit received. the executive taking a position that directly competes with the company; soliciting customers, suppliers or partners; or. Bridgespan and Leading for Impact are registered trademarks of the Bridgespan Group. This website uses cookies to collect certain information about your browsing session. I gently brought my concern up to the board chair, suggesting that I might not be the right person to lead the organization. That is, if the search process takes six months, the agreement might specify a notice period of six months. This button displays the currently selected search type. This took an extreme emotional toll on her and the organization, and both required several years to recover. Other times it is offered without being asked. Almost every executive director I know wants an employment contract, but the vast majority of boards are reluctant to give their executive directors a contract. Theemployment contract also should specify when evaluations would take place for example, annually or bi-annually and the factors to be considered in the evaluationalong with clear terms for termination. The last chapter in "Nonprofit Boards and Executive Contracts" covers the Supplemental Executive Retirement Plan, or SERP, an element of the employment contract that offers significant advantages to both the CEO and the board. Join for free to get the latest senior-level jobs, career growth content, and market research studies sent straight to your inbox. FAQ Okay, knowing all of this, how do we begin negotiating either a new contract or a renewal? This is one I just cant argue with. Finalize the job description. Exit Agreements for Nonprofit CEOs: A Guide for Boards and Executives According to current federal tax laws, the best equity arrangement for both the executive and company is to maximize the executives potential use of qualified small business stock (QSBS) which offer the potential for zero capital gains taxation. Usually, if an executive director is terminated for cause, or if the employment agreement is not renewed at the end of its term, severance is not payable. Share. 1. (Full information: Kevin lives an attorney real maybe have a dispositional fondness for contracts.) Elements of an Executive Director Employment Contract You'll enjoy curated premium content, like this, plus access to our job board, special promotions, and more. Before I present these, however, let me remind readers that I am not a lawyer or accountant and am not providing legal, tax or accounting advice. Non-disparagement clauses are enforceable, except when the executive director is subpoenaed. Without properly navigating the executive employment contract, a CEO or other C-level or senior executive can lose large sums of money or limit his/her career. 7. Since the employment contract outlines general roles and responsibilities, it can prevent arguments between the board and executive director. Everything workers need greater protections, but since the ED is so centralization to this impact the the organizing, we are focusing here only on the employment contract of EDs (nonprofit CEOs). Other important considerations are reimbursement for relocation and reimbursement for house hunting trips for the CEO and spouse. List demands of the job (focusing on your nonprofit's needs). FAQ Severance is a one-way street; it benefits the CEO if we want to get rid of him, but he can resign anytime he likes. One of the biggestand sometimes most intimidatingchallenges people face in their careers is negotiating compensation. This might occur in connection with negotiations over a retention agreement. If both sides agree to an amount of severance in advance, in writing, there is some protection for the board. To reward the CEO, C-level or senior executive for both company and individual achievements, the new hire should gain a real equity stake in the company. In conclusion, it is useful to remember, even when you feel there is a good fit as you go in, things can change and having a good contract is an important protection against your champion leaving the company or other unforeseen developments. Once you get to that point, here are several tips to keep in mind during the process: Nonprofit CEO compensation packages normally are reviewed annually against peer organization amounts. How to Hire a Great Nonprofit Executive Director | Nonprofit Blog Severance clauses can be long, torturous and take dozens of hours of legal negotiations. For publicly-traded employers with limited shares remaining in the share reserve of their equity incentive plan, the employer may consider making an inducement grant of equity outside of the shareholder-approved plan. Terry Masters has been writing for law firms, corporations and nonprofit organizations since 1995, specializing in business topics, personal finance, taxation, nonprofit issues, and general legal and marketing content creation for the Internet. Meaningful equity should be sought by the executive in advance, but sometimes packages are developed and approved by both sides over time. In my last chief executive role, I never felt like the job was a great fit - even though we grew the budget by 25% during the great recession and expanded the organization's footprint from 28 counties to 42 counties. Nonprofits filing IRS Form 990 must describe the process they use to approve executive compensation as part of the nonprofit's responses on the annual return, IRS Form 990, Part VI, Section B, line 15. For the senior executive, the contract should include his or her ability to trigger severance for Good Reason if the company breaches the agreement and fails to live up to specified terms the executive relied upon in taking the position. It is important that both the executive and the association's board remain aware of any approaching deadlines for notices and adhere carefully to the specified procedures for providing notice, as set out in the agreement. Creative Commons Attribution 4.0 International License, Determine what you need, what you want, and the difference. Because an employment agreement is a contract and can be subject to contract defenses, you will need to meet with an attorney who can properly draft and/or negotiate the contract with your prospective executive director. Boards fear that a contract will prevent them from terminating an under-performing executive director without costly payouts. National Council of Nonprofits: Roles and Responsibilities of Nonprofit Boards. The negative impact associated with Section 280G is outside the scope of this article. Upon advice of its counsel, and given the absence of anything "in writing," after weeks of rancorous negotiations, HSC agreed to pay twelve months of severance to Doe to avoid litigation. He or she will never really know the organizations until already on the job the chairmanship may change, a merger could occur, etc. This advice actually applies to both client and candidate. It can be particularly difficult for senior nonprofit executives. The agreement should specify clearly what happens at the end of the initial term. Tax advice needs to assure the right mix of equity, including not just those equity interests mentioned but also non-qualified options, PSUs, UARs, SARs, or Phantom Stock arrangements. You might be able to agree on a three year series of guaranteed annual increases, assuming outstanding performance. James Abruzzo (JA) In addition to the many other elements contained in a contract (see below), if there is anything in writing about the amount of compensation, or the start date, or references to the employee manual to describe benefits, there is a contract or at least, a letter of agreement. Read More: Does a Nonprofit Report to the State When the Board Members Change? Divide. I cover legal and policy issues affecting various business entities. Even if the board has sent the executive director home with pay for their final month or two, chief executive must still be available to answer questions, provide information, and even help ensure smooth transition. Also, dates for when the criteria are agreed upon and when the evaluation is performed should be in the contract. Please correct the marked field(s) below. As long as outside board and advisory positions do not present a conflict of interest, the company ought to allow these to the executive. Companies can write executive contracts that avoid taxable income for the executive or that allow for tax gross-up, as needed. By adopting bylaws that set organizational controls and hiring a competent executive director to manage the nonprofit's day-to-day affairs, the board ensures that the organization can further its mission without needing its daily input. 10 Big Reasons your Executive Director Needs a Contract / The Nonprofit Please prove you are human by selecting the, Nonprofit Chart of Accounts: What It Is and Why It Matters, Dilemma: Board Member Applies to be the Executive Director But Isnt Hired. Elements to Include in a Chief Executive Employment Contract For 15 years our company has published content with clear steps to accomplish the how, with high quality sourcing to answer the why, and with original formats to make the internet a helpful place. Typically, an organization negotiates a contract before the new executive director starts or after an executive director has been with them for a period of time. raiding employees after having moved on to a new position in another company. Severance describes how the relationship ends and who owes what to whom when it does. And if the employer is publicly-traded, then benchmarking against the employers peer group can provide more custom information on current market practice and competition for executive talent. Because youre paying them, they are far more likely to be cooperative. What is the point of awarding compensation unless the executive is entitled to keep it upon a change in control? By adopting bylaws that set organizational controls and hiring a competent executive director to manage the nonprofit's day-to-day affairs, the board ensures that the organization can further its mission without needing its daily input. Compensation. We have reviewed our content for bias and company-wide, we routinely meet with national experts to educate ourselves on better ways to deliver accessible content. Help shape the future of business through market research studies. This site uses Akismet to reduce spam. In instances where there is a without cause termination provision in exchange for severance payments, the terms of the severance payments should be specifically stated. They neednt be. Six Key Considerations: Executive Contract Negotiations, 4. My couple stories are emblematic of this dozens it has heard through the years. Other benefits include paid health and dental insurance, contributions to a regular retirement plan, and xx days vacation annually. And for the prospective or sitting CEO, there is no more important decision than either accepting the position or extending its term. Executive Compensation - James Abruzzo Never fear the word no in negotiations. Nonprofits should draft a formal employment contract in all but the simplest employment relationships. - CESSE, Supreme Court Redefines Burden on Employers Facing Religious Accommodation Requests, Responding to Mental Health Accommodation Requests, The California Supreme Court Clarifies Employee Whistleblower Protections, Regulating Conduct and Ethics While Minimizing Legal Risks, Attorney Spotlight: Ha Kung Wong on Promoting Diversity in His Profession and Why IP Law Matters. FAQ What is the best approach to increasing CEO salary? This isnt negotiation. The length of severance determines the contractual amount of salary the organization must pay the CEO who is fired without cause. The severance is, in effect, the length of the contract. The Nonprofit's Guide to Negotiating Contracts to Reduce Business Costs It's up to the executive director to help make powerful strides toward organizational development. https://www.executiveemploymentattorney.com He represents CEOs, C-Level, and senior executives on various issues, including employment terms, tax-favored equity, bonus and LTI compensation, change of control, retention, separation, wrongful termination, non-compete, and restrictive covenants. And as the CEO ages, particularly during negotiations for renewals, the CEO becomes less desirable in the marketplace and therefore requires protection. If the terms of the employment contract condition severance payments on compliance with the non-disparagement clause or unequivocally state that a breach of the non-disparagement clause will result in a forfeiture of severance or other benefits- the clause is optimized if the payments or benefits paid out to the executive director are paid out over a period of time. Companies should also underwrite executive initiatives that will allow you to remain current, visible and connected in the field. And they offer great advantages to both the CEO and the organization: for the CEO, in addition to the potential of extra earnings, there is the important plus that the board must evaluate the CEO; bonus can provide the CEO with significantly higher compensation in a good year, without raising the salary for the next year; and, without a bonus, the annual CEO evaluation is often not performed, or is cursory.
