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A Tale of Two CEOs

January 1, 2010

Association executive Jim was on a rare vacation, enjoying a break from the rain and snow of New England with his family in Hawaii. Then his cell phone rang on Jan. 2. The chair of his board needed to meet with Jim that Thursday; it was important, Jim’s assistant explained. So he left his family and flew East.

To his surprise, the chair arrived at his office with three members of her executive committee. After some initial pleasantries, she got to the point: “Jim, the board had a conference call over Christmas and we would like your resignation. We have come to the conclusion that the association needs a different leader to take us into the next few years. Don’t worry, we will honor our agreements with you.”

After the executive committee left, Jim called his lawyer, who pulled a copy of his offer of employment, signed five years earlier. There was a severance clause providing Jim his salary and all benefits in effect at the time (health insurance, automobile lease, club dues, etc.) for 12 months if the board should ask him to leave for reasons other than “cause.”

Jim found a new job a year later, and other than his ego, the separation caused very little damage. In fact, his children barely noticed the change other than the fact that their father could now attend their basketball games.
Then there was Jack.

Jack knew his association was under pressure and that there were financial issues, but he was having an exceptionally good year and had just signed one of the most lucrative convention contracts ever for the organization.

When a special early Monday morning executive committee meeting was called, Jack may not have been happy, but he wasn’t worried. He had suspected that the board would want to reduce head count, likely some clerical support, receptionists, and researchers. Though it would not affect his office, it was still unpleasant anticipating that some would lose their jobs. Jack arrived early, placed some fresh flowers in a vase, and started the coffee machine— kind gestures on what might prove to be an unhappy day for some.

You can imagine Jack’s surprise when the executive committee, who had also arrived early, summoned him to the conference room. “Jack, we are changing things here and no longer need you and some of the staff. We would like you to remove all personal effects from your office by 6 p.m. and leave your association laptop and cell phone here. As of midnight, your health insurance and all other benefits will be terminated.”

Even though he’d had a positive review six months earlier, had brought in more revenue than ever before, and was well regarded by all, suddenly Jack was out on the street. Unlike Jim, he had been so excited about his job offer three years earlier that he had never negotiated a severance and had not used an experienced lawyer to seal the deal. Jack had to find very expensive personal family health insurance (even COBRA was too expensive), pay off his leased car, and cover all the club dues the association had previously provided.

This tale of two CEOs is really the tale of two contracts. Jim had a solid agreement. Years earlier, when he was first hired, all parties had determined what would happen if they agreed to disagree. Since Jack did not negotiate such an agreement, he and his wife substantially depleted their hard-earned savings before he landed another job 10 months later. His organization did not even honor its “handshake” agreement to pay his country club initiation fee, which they had agreed to a year earlier as a special bonus. “Sue us” was their reply to his request. When you join a new organization, receive a big promotion, or have your next review, remember this tale of two CEOs and plan ahead.

Worst case scenario planning
Here are some key tips to securing an up-to-date written agreement detailing all payments and actions should a separation (expected or unexpected) occur.

A severance agreement is an important part of any employment contract and is usually best handled at hiring, then again after each review by the board. Although it needn’t be a complicated document filled with confusing legalese, you must have your own employment attorney (not the association’s lawyer) look it over before signing.

Typical agreements include a clear definition of what happens if there is a forced separation. Traditionally, CEOs get severance pay for 4 to 12 months. They also get many, if not all, in-place benefits during those months, particularly family health insurance. Sometimes the board will offer a lump sum payment, though we suggest that the executive petition for monthly payouts. Other benefits to be negotiated ahead of time include terms of keeping an association laptop and cell phone; access to office services; continuation of automobile leases, education allowances, and club dues; and provision of legal expenses and possibly outplacement services (we have heard mixed reviews of the latter).

Everything must be in writing and carefully checked by your experienced employment lawyer. We cannot emphasize this enough. Your attorney will find subtle nuances that could be missing—or have been added—which could become very painful to you years later. Never negotiate for yourself; too many emotions are involved.

Remember, if the organization really wants you (or wants to keep you), it will put the employment details, including a severance agreement, in writing. After all, the agreement protects the organization, too. No board wants a messy lawsuit with a public airing of issues. The slightly uncomfortable time spent up front working with your lawyer to negotiate a fair deal is minimal compared to the financial and emotional strife you might otherwise experience.

Editor’s Note: Leonard Pfeiffer is not an attorney and this column should not be taken as legal advice. Always consult legal counsel when negotiating an employment contract or hiring agreement.

Leonard Pfeiffer heads Leonard Pfeiffer & Company, a national executive search firm. He can be reached at 202/737-6327 or BD@pfeiffercompany.com.