Employment Agreements

1. Practice Pointers
2. CII Policy Regarding Employment Agreements
3. Video Webcast Panel (2004 Compensation Conference)
4. Video Webcast Panel (2005 Compensation Conference)
5. Hold Until Retirement Provisions Practice Area
6. Clawback Provisions Practice Area
7. Employment Agreement Disclosure
8. Companies That Do Not Have Employment Agreements

1. Practice Pointers
• Talking Points - What to Do About Reviewing Outstanding CEO Pay Packages and Agreements
• Red Flags for Compensation Committees When Approving CEO Contracts
  —Susan Serota, Pillsbury Winthrop LLP
• The Problem with Evergreen Agreements
  —Anonymous Task Force Member
• Adding "Bad Boy" Clauses to Executive Benefit Arrangements
  —Jeffery Banish, Hunton & Williams LLP
• Consider Whether Definition of "Cause" Should Include Failure to Cooperate With Governmental Investigation
  —Anonymous Task Force Member
• The Next Generation Plan Design Best New Practices & Features
  —Tim Sparks, Compensia, Scott Spector, Fenwick & West, LLP, Thomas Reicher, Cooley & Godward LLP
• Stealth Compensation - Post-Retirement Plans and Consulting Contracts
  —Lucian Bebchuk and Jesse Fried
• Agreements and Surveys  
  —Tim Sparks, Compensia
• Merrill Lynch Announces that Their Executives Will Give Six Months Notice
  —Excerpt from the Form 8-K, filed 9/17/04
• Companies With "Hold 'Til Retirement" Guidelines
  —Robbi Fox, Hewitt Associates
• The Use of Clawback Provisions: Putting a Price on Disloyalty
  —Louis Rorimer, Jones Day 
• Novel Ways to Structure Pay Packages
  —Joe Bartlett, Fish & Richardson LLP (6/23/04)
   

2. CII Policy Regarding Employment Agreements

   Here is what the Council of Institutional Investors included in its recently updated policy on executive compensation:

   "Various arrangements may be negotiated to outline terms and conditions for employment and to provide special payments following certain events, such as a termination of employment with/without cause and/or a change in control.  The Council believes that these arrangements should be used on a limited basis. 

   Structure

   • Employment contracts:  Companies should only provide employment contracts to executives in limited circumstances, such as to provide modest, short-term employment security to a newly hired or recently promoted executive.  Such contracts should have a specified termination date (not to exceed three years); contracts should not be "rolling" on an open-ended basis. 

   • Severance payments: Executives should be entitled to severance payments in non-control change situations only in the event of wrongful termination, death or disability.  Termination for poor performance, resignation under pressure or failure to renew the contract should not qualify as wrongful termination. 

   • Change-in-control payments.  Any provisions providing for compensation following a change-in-control event should be "double-triggered," stipulating that compensation is payable only (1) after a control change actually takes place and (2) if a covered executive's job is terminated because of the control change. 

   

   Limitations

   • Gross-ups:  Companies should not compensate executives for any excise or additional taxes payable upon the receipt of severance, change-in-control or similar payments. 

   Proxy Statement Disclosure

   • Transparency: The compensation committee should fully and clearly describe the terms and conditions of employment contracts and any other agreements/arrangements covering the executive oversight group and reasons why the compensation committee believes the agreements are in the best interests of shareowners. 

   • Tabular disclosure: The compensation committee should provide tabular disclosure of the dollar value payable, including gross-ups and all related taxes payable by the company, to each member of the executive oversight group under each scenario covered by the contracts/agreements/arrangements, including change-in-control, death/disability, termination with/without cause and resignation. 

   • Timely disclosure: New executive employment contracts or amendments to existing contracts should be immediately disclosed in 8-K filings and promptly disclosed in subsequent 10-Qs. 

   Shareowner ratification

   Shareowners should ratify all employment contracts, side letters or other agreements providing for severance, change-in-control or other special payments to executives exceeding 2.99 times average annual salary plus annual bonus for the previous three years."

3. Video Webcast Panel: What to Do About Reviewing Outstanding CEO Pay Packages and Agreements (2004 Compensation Conference)
   • Obligations to re-examine, modify existing arrangements
   • Fixing and adding "cause" provisions and clawbacks
   • Ways to address current excessive compensation and how to have a difficult conversation about rolling back pay
   • How to implement meaningful holding periods for outstanding equity compensation
   • How to avoid traps for the unwary director when negotiating employment contracts and other compensation arrangements

   Speakers: Ron Mueller, Gibson, Dunn & Crutcher; Michael Melbinger, Winston & Strawn
    

4. Video Webcast Panel: How to Fix Outstanding CEO Pay Packages and Agreements (2005 Compensation Conference)
   • How to fix and add "cause" provisions and clawbacks
   • Ways to address current excessive compensation
   • How to have a difficult conversation about rolling back pay
   • How to implement meaningful holding periods for outstanding equity compensation
   • How to avoid traps for the unwary director when negotiating employment contracts and other compensation arrangements.

   Speakers: Michael Melbinger, Winston & Strawn; Tim Sparks, Compensia
   
   

5. Hold Until Retirement Provisions Practice Area
    
6. Clawback Provisions Practice Area
    
7. Employment Agreement Disclosure
   • Waste Management Proxy Statement (2005)
   • Unocal Corporation Proxy Statement (2005)
      
8. Companies That Do Not Have Employment Agreements
   • Darden Restaurants
   • Exxon Mobil
   • General Electric
   • Health Management
   • Intel
   • Masco Corp