How to Write an Executive Agreement?

An executive agreement between two parties is of great legal significance. An executive agreement outlines the terms of the professional relationship between the two parties. It precisely gives the details that govern the relationship such as incentives, goals, benefits, termination clause and restrictive laws that are related to the legal agreement, and rights and responsibilities of the parties involved. The contract must contain the expectations of the employer to its executive staff, outlining the future objectives and incentives. An executive agreement will describe the expectations with regard to the role, duties, and performance. It will establish the important contractual obligations of the executive. It will tackle executive privilege, compensation and benefits, equity grants, the length or term of employment, termination, consequences, and so on. However, there are no such guidelines for developing an executive agreement. It actually depends on the businesses on how they create an executive agreement. Just remember the specific points listed below that need to be included in the executive agreement.

1. State Both Parties' Identity

First things first, parties involved in the contract must be properly identified. It should include a contractual parties clause defining each party to the agreement. Focus solely on those who signed the executive agreement, this will ensure that the agreement does not give any rights to a third-party beneficiary.

2. Indicate Term Renewals

An executive agreement will normally set an effective date and will explain the initial terms of employment. The agreement should discuss whether the relationship is for a term or at-will and whether the term ends at the expiry of the original term or is renewed automatically in the absence of advance notice for extended periods.

3. Write the Termination Clauses

A termination clause is almost always present in an agreement which gives the employer or chief executive officer (CEO) the power to terminate the executive's employment contract instantly if the executive acts against the employer's interest such as felony. The executive will want the definition of "Cause" to be reasonably narrow and not unreasonably broad or vague. Executive agreements that stipulate without cause for termination enable organizations to release an executive staff for bad results or other associated reasons, however, organizations are obligated to pay severance benefits with termination. The with cause termination, the opposite of the without cause, stipulates that terminated executives are released without severance benefits.

4. Include Some Compensations

The executive agreement should discuss the basic compensation for the executive's information. Compensation elements should be straightforward, like equal pay in the annual salary paid period installments, while there are complicated compensations such as formula-based incentive compensation. Bonuses may be discretionary or subject to objective accomplishments.

5. Discuss Governing Laws and Jurisdiction

Almost every basic agreement discusses the governing laws and jurisdiction that will guide the agreement. Typically, executive employment agreements specify the law to be applied by a court or arbitrator to interpret the contract and resolve future disputes, as well as the state in which such disputes are to be litigated. Executives should be aware that in a distant state they may be committed to resolving a future disagreement.

Read More