June 7, 2023
Compensation Considerations in a CEO Transition
A CEO transition is anxiety provoking for all involved. It’s a complex process with many legal and business challenges. This Skadden article identifies nine common mistakes companies often make during a CEO transition. Here are some compensation-related reminders from the article:
– Failing To Consider How the Rights of Other Senior Executives May Be Triggered by the CEO’s Termination — The termination of a CEO may trigger contractual rights for other senior executives within the organization, such as “good reason” provisions. Boards should carefully review the provisions in those employment agreements to ensure compliance and avoid potential legal disputes.
Apart from any legal rights, the impact of a CEO transition on retention of other key leaders (who often were, or considered themselves, candidates for the CEO role) should also be considered, and a plan should be developed to address those concerns via compensation or some other means.
– Neglecting the Impact of Termination on Noncompetes and Restrictive Covenants — The nature of a CEO’s discharge can impact the enforceability of noncompetition covenants and other restrictive covenants. In some states, for instance, non-competition and similar covenants may not be enforced against an employee who was discharged without cause.
– Meredith Ervine