Many employees, especially executive level employees, approach an offer of employment as a “take it or leave it” proposition. The reality, however, is
that unless you negotiate, you will end up with terms that are generally skewed and favorable to the employer. As with executives negotiating more
favorable severance packages, executives negotiating employment agreements should consult with an attorney prior to negotiating or signing any such
document. Once you sign on the dotted line, the executive has effectively given up any leverage in negotiating terms that will directly impact his
or her role, compensation, future obligations to the employer, including who and where else they can work next. This article will address some of the
terms that we recommend an employee should consider negotiating as well as how to negotiate effectively so that an employer is not “put-off” by your
Will My Future Employer Negotiate?
An executive with an employment agreement in hand is in a strong position to negotiate with the employer for better terms of employment. The employment
agreement is the last step of an employer’s long recruitment process, which plays largely into the employer’s willingness to negotiate at this point.
On the surface it seems the negotiating dynamic is skewed much in favor of the employer, who holds the desired position. However, the employer does
not want to lose the person they want most and then have to repeat the arduous recruitment process if all it takes is revising the existing agreement
to provide the executive with better terms. Executives who come to their employers with reasonable requests might be surprised by the employer’s willingness
to negotiate. This is especially so when the employer has actively recruited the executive from her current employment at another company. This is
the first moment where the executive and employer’s interests may clash; and the employer, having pursued the executive, will want to show that it
is responsive to the executive’s needs and willing to give them serious thought.
How Does Negotiation Work?
The first step is to understand the terms that are being offered and the future implications of those terms. By reviewing the agreement with the help of
employment counsel, the executive will get a full understanding of the agreement’s terms and the risks associated with signing off on those terms—especially
restrictive covenants that might inhibit the executive’s growth in the profession should he or she leave the company for a position elsewhere. The
goal is to isolate the terms that are important to the executive and that need to be refined with a plan for how the executive will negotiate those
terms when he or she next meets with the employer or its representative. For example, an executive who wants to protect themselves from subjective
termination would prioritize negotiating a pro-employee “cause” termination clause and a severance package that stipulates the executive will receive
earned, unvested compensation if terminated. For an executive whose compensation is primarily based on bonus, equity pay or stock options, the priority
will lie with negotiating better vesting options and non-dilution terms.
Once counsel and the executive have worked through the priority of the terms that need to be revised, it is often advisable to have the executive provide
an annotated agreement with the revisions built-in to the employer for consideration. The executive must assert their position boldly while being careful
not to alienate the future employer with coaching from counsel on presentation of issues. If the executive and the employer fail to compromise, the
executive should then consider having his or her attorney engage in direct negotiations with the employer’s General Counsel on behalf of the executive.
So What Exactly Will I Be Negotiating?
Depending on the industry and the executive’s priorities, an employer may seek revisions on any of the following terms of employment.
- Remunerative terms, such as:
- • Salary
- • Bonus
- • Commission
- • Stock options
- • Medical benefits
- • Retirement benefits
- • Deferred compensation
- • Vacation and leave
- Restrictive covenants, such as:
- • Non-compete
- • Non-solicitation
- • Confidentiality
- • Preserving trade secrets
- • Dispute resolution
- Terms of severance, such as:
- • Grounds for termination, i.e., for cause, not for cause, mutual agreement, notice requirement, opportunity to cure
- • Severance pay
- • Continued medical coverage
- • Buy-back of equity
- • Bonus payouts and vesting periods
- • Dispute resolution (arbitration vs. litigation).
The bottom line is that an executive with an offer of employment and an unsigned employment agreement should always consider negotiating for better
terms. If you do not ask, you will never get – but you have to do it with tact and strategy. This article is not intended to be nor should it be
construed as providing legal advice. As with any matter, the particular details of each executive’s situation require careful consideration and
should be reviewed individually with an attorney.
Yogi Patel, Esq. is an employment and business lawyer and partner at Lloyd Patel LLP, a general practice law
firm. He can be reached directly at email@example.com.
Whitney McCann is a second year law student at City University of New York School of Law, interning at Lloyd Patel LLP, and expects
to graduate in May 2017.