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More than pay: Contracts should set grounds for firing

Panel advises CEOs to consider risks, establish commitment to organization, get severance and make a financial plan when negotiating

June 5, 2014

By William Ehart

Though most executives focus on compensation, defining potential cause for termination is a critical part of a CEO contract, experts told an audience of association chiefs at the CEO Update Live: Personal Financial Strategies event today at the SunTrust Bank building in Washington, D.C.

“When I review a contract, the first place I go is the definition of cause,” said David Warner, an employment attorney with law firm Venable. “That’s what puts the executive at most risk.”

Establishing an executive’s commitment to the organization also is a good place to start negotiations, rather than coming across as mercenary, said Charlie Quatt, president and founder of compensation consultant Quatt Associates.

“A nonprofit has a mission,” Quatt said. “No board of directors wants to think that you’re coming there just for the money."

Wilson Moy, a Washington, D.C., area financial planner for SunTrust, a sponsor of the event, said wealth planning should be a component of executive contracts.

“It’s important to do a financial plan early” in your career, Moy said. Potential related benefits include insurance coverage, additional disability coverage, long-term care and a stipend to pay for financial management, he said.

Quatt said executives should ask for at least six months severance; the median contract severance is one year, he said.

CEOs should be willing use data to back up their requests for severance clauses, he said. Quatt cited a study from the American Research Company—reported in CEO Update May 30—showing that 71 percent of association executives have contracts, and 76 percent of those have severance.

“If a board of directors doesn’t want severance, it’s not inappropriate to ask why,” he said.