Compensation Plan Terms Paramount


    Plan terms are paramount when it comes to designing executive compensation agreements, says Terra Klinck, a partner in the pension, benefits, and executive compensation group at Hicks Morley. Speaking on ‘Just Desserts: Executive Compensation Legal Issues, Best Practices and Trends for 2014’ at one of its ‘Advantage’ sessions, she says these agreements must be clearly drafted and written in terms that reflect the employer’s intentions on payout, vesting, and other considerations. For examination in legal actions over these agreements, courts will often use the date of termination to decide an employee’s entitlement to bonuses, stock options, and other extra compensation. The proper language will get past these hurdles, but it not enough to refer to the date of termination if an employer wants participation in a plan to cease once an employee ceases to provide services. Termination needs to be clearly defined. One approach is to use the date notice is given as the effective date. However, employers may not be able to rely on clear plan language unless the terms are brought to the attention of the employee. She recommends annual grant agreements where key terms are described and highlighted and the employee gives a written sign back.