It has traditionally been common wisdom that executives should have a written employment agreement, and that those who didn’t were disadvantaged. This is especially true today when it appears that the average tenure of employment of an association CEO has been significantly reduced. Lately, association CEOs seem to be in the category of football managers and star athletes. They are hired to come in and do a job, and when things don’t go the way the owners (board members) think that they should be summarily dismissed. Thus a CEO must have the protection of a well-written employment contract that clearly defines the job responsibilities and provides protections for his or her financial future in the event of termination.
Contracts Benefit Both Parties
Some association leaders are reluctant to provide a CEO with an employment agreement, because such agreements are not customary in their own industry or profession. Hence, the CEO needs to able to point out to the leadership why a contract is desired. Here are some reasons why a CEO employment contract is good for an association:
- Because of the changing nature of an organization’ leadership, an employment contract ensures stability and continuity.
- A well-drafted CEO contract can protect the association from the “tyranny of a minority” a situation in which one or more board members may attempt to gain control of the management of an organization to foster their own interest.
- A contract will assist the leadership in evaluating and directing the CEO. (A comprehensive contract should include clear performance measures against which the CEO’ annual performance is evaluated.)
- The contracting process helps association leadership define and understand the role of the CEO.
- A contract that clearly defines the rights and responsibilities of the parties in the event of termination will eliminate disputes that can lead to costly, time-consuming litigation.
- The best-qualified candidates will not accept a position that is not secured by a written employment contract.
Similarly, a written employment contract provides certain benefits and assurances to the CEO. In particular, a comprehensive contract will accomplish the following goals:
- Provide employment security and protection for an executive in a constantly changing employment atmosphere. For one thing, the cost of paying the employee severance for termination for reasons other than cause will often deter association officers from firing a CEO for differences in management style, varying business philosophies, or clashes of personality.
- Ensure financial security by providing adequate severance in the event of termination and allow the executive to seek new employment.
- Provide for any specific items needed by the employee to adequately perform his or her job functions.
- Define benefits and bonuses that may exceed those provided to other association employees.
- Clearly define responsibilities and relationships with the board and leadership.