The Compensation Committee Handbook, 4th Edition

CHAPTER 11 Executive Employment, Severance, and Change-in-Control Arrangements

This chapter discusses the compensation committee's primary role in the structuring, negotiation, and implementation of employment, severance, and change-in-control arrangements for a company's top executives. It also discusses current market-based practices and attitudes with respect to whether and why a company—primarily through its compensation committee—would consider entering into these arrangements.

This chapter is divided into the following topics:

• Background
• The process involved in determining whether a company should enter into formal employment, severance, and/or change-in-control arrangements for its top executives
• Types and forms of employment arrangements
• Terms and conditions, and other elements of these arrangements

Generally, this chapter assumes that the compensation committee is establishing and implementing employment arrangements for the company's chief executive officer (CEO) and other senior executives, not rank-and-file employees.

Background

Essentially, there are two basic and distinct employment arrangements:

1. An “at-will” employment arrangement, generally evidenced by the lack of a written agreement
2. A “contract” or written employment arrangement, generally evidenced by some written agreement and/or plan, or a group of written agreements and/or plans

Thus, an employment arrangement that is not at-will typically is evidenced by a formal written employment agreement. However, ...