Employment Contracts Protect the Promises

by Kate Knable  on Monday, Oct. 15, 2012 12:00 am  

Cameron Smith, of Rogers recruiter Cameron Smith & Associates, says "the best definition of an employment contract is it protects the promises made during the courtship and offer stages." (Photo by Kat Wilson)

University of Arkansas football coach John L. Smith’s employment contract lays out the bonuses he’ll score if his team succeeds this year, ranging from $200,000 for winning a Bowl Championship Series national championship down to $25,000 for appearing in any minor non-BCS bowl game.

As does Smith’s contract, the employment contracts of top executives across Arkansas specify performance-dependent bonuses, salaries and other benefits. Such legally binding contracts protect both employer and employee.

“The best definition of an employment contract is it protects the promises made during the courtship and offer stages,” said Cameron Smith, president and CEO of executive recruiter Cameron Smith & Associates in Rogers. “The company is recruiting this candidate. This candidate is a game changer for them.”

Smith recruits for and negotiates the contracts of director through officer-level positions for Wal-Mart suppliers.

In the “courtship” stage, companies promise perks like performance bonuses, sign-on bonuses, stock options, equity, guaranteed severance and vacation time. The contract “puts it in writing” that the company will, for example, fund a cross-country move, buy office furniture or build a new facility, Smith said.

Typically, a contract also includes a term of employment, which commonly commits the employee for one year to a company, said Melanie McClure, an employment lawyer with Cox Sterling & McClure PLLC in North Little Rock.

“It’s recruiting; it’s retention; it’s stability. But generally [contracts] are only valuable for your executive employees, particularly in a public company, because it gives shareholders a sense of continuity,” McClure said. “Shareholders can see the CEO has committed to a particular amount of time.”

At  the UA, the job of chancellor is another position where new hires are competitively recruited and contracts are used, said  spokesman John Diamond. 

“Contracts like that are reserved for those positions that are highly selective and the talent available in the marketplace is rare,” Diamond said.

High-profile leaders can improve or damage the finances or reputation of the university, so contracts guard the UA’s interests and also recognize employee success or failure, he said.

“It all gets down to the market-driven realities of trying to build positions that require enormous responsibility and carry enormous consequences for the parties involved,” Diamond said.  

In the TV industry, on-air talents typically get contracts. Depending on the general manager, some producers and managers might also have contracts, said Chuck Spohn, general manager of Little Rock’ s KLRT-TV, Channel 16.
 
‘They Want Results’

Contracts also detail morality clauses and circumstances permitting termination with cause. They also can include an arbitration agreement or specify who pays for attorney’s fees to enforce the contract, McClure said.

Companies outline gradual stock vesting plans and bonuses to reward successes, but can also opt not to renew employee contracts, McClure said.

“Most of them are in favor of the candidate, but the companies, they want results,” Smith, the recruiter, said.

Contracts often include noncompete agreements to protect the company from having an employee run off with intellectual property or the company’s clients, Smith said.

In TV, noncompete agreements prevent news personalities from switching stations in the same market and taking viewers with them.

“They become part of your television station, and if you didn’t have an agreement, they could go to your competition and immediately be on air,” said Mark Rose, general manager of KATV-TV, Channel 7, in Little Rock.

Further, contracts detail “remedies for a breach,” said Randy Wright, labor education specialist at the University of Arkansas at Little Rock. Remedies can include employees losing unvested stocks and bonuses.

“You know this,” Wright said. “It weighs on you when you make the decision to breach the contract. Otherwise, there’s no incentive not to break it.” 

 

 

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