Employment Law Resources

Employee Briefcase

Apr 8 2014

Understanding Executive Retention Agreements | Employment Law

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The use of Executive Retention Agreements (“Agreement” or “Agreements”) generally occurs in two broad situations. First, the agreement is a reward in recognition of the executive’s significant contribution to the creation of value and leadership within the company. Alternatively, an executive may know or suspect their employer is going to be acquired or their employment security is in danger for another reason outside of the executive’s control.

In these situations, employers, who want to ensure the executive’s continuing loyalty and commitment and believe that it is in their company’s and shareholder’s best interests, will provide the executive additional incentive to continue his or her employment. Such Agreements ensure that the executive will continue to maximize the value of the company instead of focusing on the potential loss of their position. The motivation usually takes the form of bonus compensation, severance, or both, as well as the provision of other benefits that the employer deems necessary to retain the executive.

In addition, executives should seek the protection of a change in control provision. Although such provisions generally appear in employment and severance agreements, we have successfully negotiated these provisions either as a stand-alone agreement or as part of an Executive Retention Agreement. The benefit of a change in control provision is peace of mind—the executive knows he or she will receive compensation and benefits if the executive loses their position under certain circumstances following, for example, a merger of the company.

Such provisions are sometimes called “golden parachutes” because they provide protection for executives that exit the company. There are single trigger and double trigger change in control provisions. Single trigger provisions simply require the occurrence of change in control event, such as a merger, for the executive to obtain a vested right to the compensation. A double trigger change in control provision requires the occurrence of a control event, such as a merger, plus the executive’s subsequent separation from service. Following the executive’s separation— either for involuntary termination or voluntary resignation with good reason—compensation would be paid to the executive.

We understand the ins and outs, and points of negotiation, of several different types of individual executive agreements including change in control agreements, employment agreements, severance agreements, deferred compensation agreements and retention agreements.