Executive Compensation Agreements
We have the knowledge and experience to help our clients with the variety of executive compensation agreements agreements that a business may want and that a top executive needs.
Executive Compensation Agreements are important to attract and retain top talent. The EC agreements can be complex or simple. They can provide incentive foe performance and always have tax ramifications. Salary and benefits and bonuses, duties, performance standards and restrictive protections are just the start of such agreements
We help clients, employees and employers negotiate the best possible compensation, benefits, and bonuses. We are familiar with the standard amounts, timing, and other details of compensation, benefits, and bonuses across many professions and industries and with the applicable laws.
Executives and other individuals across industries are often entitled to receive short term or long term compensation in the form of an annual bonus, a retention bonus, long term incentive or other combination of cash, stock, options or comparable equity. This entitlement can stem from an offer letter, contract, compensation plan, or other agreement. We have successfully negotiated to ensure that employees receive a bonus that has been earned, that it is paid in a timely way to avoid necessary compliance with IRS rules (i.e. 409A), and the proper terms and criteria for its receipt. Our attorneys also are prepared to litigated, arbitrated, negotiated, and mediated these types of compensation disputes when they arise.
In many businesses, employees receive bonuses based on their performance, the performance of their departments or divisions, and/or the overall performance of the company. Some companies will also measure performance against other industry standards. While some employees' bonuses are a small fraction of their total compensation, in some businesses bonuses represent the majority of many employees' total compensation.
There are generally, two types of bonuses: discretionary and guaranteed. Companies often use guaranteed bonuses as an incentive in hiring. An employee with a guaranteed bonus has a contractual right to that bonus, even if the employee does not have an employment contract and is instead employed "at-will". Attorneys at our firm negotiate offer letters and employment agreements that contain guaranteed bonus language and draft language designed to ensure that our client's rights to guaranteed bonuses are protected in the event of termination.
Discretionary bonuses, in contrast, are generally not guaranteed by contract and are often based on performance goals being met such as EBIDTA, sales, new business growth or other measures of success.
A retention bonus, is generally, short term compensation that is promised to an executive or employee when the company is potentially being sold, merged or in turnaround, and the business needs to motivate the executive to stay.
We are familiar with various industries and positions that utilize commission compensation. We negotiate and structure our client's commission-based compensation plan to ensure that they receive equitable and market commission rates and payment terms. We also negotiate severance agreements and exit packages that include, among other terms, structuring the payments of commissions earned by employees prior to termination. In the event our clients are involved in disputes over unpaid commissions, we litigate and arbitrate such disputes.
We review and negotiate employment agreements and separation agreements that include deferred compensation arrangements. When an employer refuses to comply with the terms of the relevant plan, our attorneys litigate and arbitrate the disputes. In addition, our attorneys can intercede on behalf of an employee who may have additional rights under ERISA when an employer misclassifies a qualified deferred compensation plan as a non-qualified plan.
Deferred Compensation is income that is earned in one year but paid out in a later year. Deferred compensation plans are financial arrangements, usually between an employer and employee, in which a portion of an employee's earned income is withheld and paid out at a specified future time. These plans provide employees with future financial income as well as a tax deferral, since the withheld income usually is not taxed until the date it is received. The deferred income also collects interest before it is taxed.
There are two kinds of deferred compensation plans: qualified plans and non-qualified plans. Qualified plans are regulated by ERISA, while non-qualified plans (“non” qualified because they are outside the scope of ERISA plan regulations) are regulated by Internal Revenue Code section 409A. Qualified plans, like 401(k)s and IRAs, generally set aside money to be paid to employees in retirement. Absent special circumstances, employees cannot access qualified deferred compensation before retirement age without incurring a substantial penalty.
Non-qualified deferred compensation plans usually are offered only to a select group of high-level employees who, although constrained by a future date(s) stated in the plan, may access the deferred funds before retirement. These plans are not limited in the amount or type of compensation that can be deferred. They include executive bonus plans, group carve-out plans and split-dollar life insurance plans, and often involve investment of the deferred amount by the employer on the employee's behalf. Deferred compensation plans provide an incentive for employees to remain employed by the company providing the plan since employees may risk forfeiting unvested deferred compensation if they change employers. Employees that participate in these plans, however, also risk losing money on the investment.
Equity & Stock
We can assist employees in understanding the terms of their equity and stock grants and negotiates agreements containing the terms of these grants. Employees should be aware of the terms of their awards or the plans that govern those awards. When an employer breaches the terms of an employee's equity and stock grants, our attorneys work to negotiate an amicable resolution of the dispute, or pursue litigation or arbitration if necessary. If a tax specialist is required to explain the tax consequences of equity and stock grants, we have professionals available to ensure that our clients receive the best advice.
Employees may receive equity compensation for services performed. Equity compensation may be in the form of restricted stock, restricted stock units, stock options, phantom stock, or stock appreciation rights, among others. Equity and stock compensation is generally treated as taxable income. Most equity compensation is subject to some form of vesting, meaning employees generally do not receive the award and cannot transfer it until they have worked for a specific period of time and/or they have met specific performance criteria.
Equity and stock grants are typically governed by a stock plan or an agreement describing the terms of the particular award. Vesting periods can be accelerated when certain trigger events occur, such as an initial public offering or sale of the company, or when an employee retires, dies, or is terminated without cause before the end of the vesting period.
We will review and negotiate various retirement-related exit packages or agreements that bridge an employee through retirement. Additionally, we review various retirement plans to help employees understand their rights and entitlements upon retirement.
Retirement benefits, including pensions and other benefits provided through an employer's retirement plan, are compensation arrangements for employees who have worked a certain number of years, attained a certain minimum age, and are no longer earning a regular income from employment. Retirement plans may be set up by employers, insurance companies, the government, or other institutions such as employer associations or trade unions. Once employees decide to retire, they may be able to benefit from employer-provided retiree health insurance, full vesting of their equity compensation, or a payout of their retirement savings account or 401(k).