Negotiating Executive Employment Agreements: Cutting A Path Through The Regulatory Thicket
Wendi S. Lazar and Katherine Blostein write about negotiating executive compensation agreements, and current issues. The landscape of executive compensation has changed significantly since the financial crisis of 2008. As a result of the ensuing downturn and increased public scrutiny, executives’ leverage in negotiating the terms and conditions of their employment and equity agreements has decreased. The overwhelming outcry about excessive pay from shareholders and the public following the downturn resulted in new legislation that limits executive pay for top executives at public companies and imposes compensation restrictions and disclosure requirements on large companies generally. However, in the intervening years, the Securities and Exchange Commission still has not enacted rules implementing a significant portion of the new legislation, and therefore much uncertainty remains. In addition, the past several years have seen a return to performance-based compensation, as well as a movement towards eradicating excessive guaranteed bonuses on Wall Street and among other bonus-based businesses. Wendi S. Lazar and Katherine Blostein write about negotiating executive compensation agreements, and current issues. Bloomberg BNA, Pensions and Benefits Daily. Reproduced with permission from Pension & Benefits Daily, 127 PBD, 07/02/2014. Copyright 2014 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
Wendi S. Lazar and Katherine Blostein. Bloomberg BNA, Reproduced with permission from Pension & Benefits Daily, PBD, 11/02/2011. Copyright 2011 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
The financial crisis of 2008 and the ongoing down-turn in the economy has had a significant effect on executive compensation and on executives’ leverage in negotiating the terms and conditions of their employment and equity agreements. The overwhelming outcry about excessive pay from shareholders and the public has resulted in federal regulations that limit executive pay for top executives at public companies and impose compensation restrictions and disclosure requirements on large companies generally. In addition, there has been a return to performance-based compensation, as well as a movement toward eradicating guaranteed bonuses on Wall Street and among other bonus-based businesses.
However, because of a need for top talent in tough times, companies are adjusting to the newly imposed restrictions and, where possible, are finding creative ways to structure compensation packages for employees. Unfortunately, public opinion is not as easily assuaged. The current challenge for companies and their counsel negotiating executive agreements is to balance the need for attracting and compensating top talent against potential negative public opinion. How hard and where to push becomes a concern in order to ensure that these agreements pass muster with the companies’ shareholders.
With these considerations in mind, attorneys representing executives should be aware of the most recent trends, developments, and regulations that will affect negotiations in the current economy.
Executive Pay: Skydiving With a New Parachute; Recent regulations affecting Executive Compensation.
Wendi Lazar and Katherine Blostein survey the new laws and regulations associated with the current economic downturn and the resulting shifts in the form, nature, and timing of executive compensation. Recently enacted laws like the American Recovery and Reinvestment Act of 2009 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as Section 409A of the Internal Revenue Code, impose firm restrictions on the compensation of top executives; the restrictions vary based on the size of the employer and whether it is publicly traded. This article concludes that “the days of paying excessive executive compensation unchallenged by regulators and shareholders [are] over.” The authors emphasize the need for attorneys negotiating executive employment agreements to be aware of these and other developments and their impact on the type of compensation packages employers are offering their top executives. Attorneys also must ensure that all agreements about compensation are memorialized in an employment agreement or other contract, including provisions for the treatment of deferred compensation in the event of termination.
*Originally published as Wendi S. Lazar and Katherine Blostein, “Changing Economy Impacts Executive Pay,” BNA Pension & Benefits Daily, 172 PBD, Sept. 09, 2009.
Reproduced with permission from Executive Compensation Library on the Web, XCLW, 06/06/2011. Copyright
The Dodd-Frank Act's Whistleblower Provisions: The Act's Best Hope For Exposing Financial Wrongdoing
In this BNA Insights article, Outten & Golden attorneys Tammy Marzigliano and Cara E. Greene take a close look at these provisions and the effects of preceding laws, such as the Sarbanes-Oxley Act, to examine what their future impact might be. Bloomberg BNA, Workplace Law Report, 10/22/2010.
On Sept. 15, 2008, Lehman Brothers collapsed, sending shock waves through the financial services industry and portending the industry's broader meltdown. Less than two weeks later, Washington Mutual was seized by the federal government and placed into receivership. Over the next year, more than 100 banks folded, Americans saw $13 trillion in wealth evaporate, and massive securities fraud, like that committed by Bernie Madoff, shook investor confidence to the core. The housing market collapsed, the number of people out of work hit 15.6 million, and the federal deficit ballooned. America was in the midst of the Great Recession.
In response, on July 21, 2010, the federal government enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “act” or “Dodd-Frank Act”), which overhauls and strengthens federal oversight of the financial system. While it is impossible to know whether the financial meltdown could have been avoided had the act's provisions been adopted in 2007 instead of 2010, the question on everyone's mind is whether the Dodd-Frank Act will keep it from happening again. Only time will tell if it will have the desired and intended impact, but the act's whistleblower provisions attempt to ensure that in the future financial fraud and irregularities are exposed long before they corrupt the entire system.
Multiple Issues In Corporate Raiding Of Employees: Outside Counsel
Wendi S. Lazar and Katherine Blostein, New York Law Journal (online), May 1, 2009
Now that bankruptcy proceedings have replaced mergers and acquisitions, poaching key employees rather than buying a division can be cost effective. Corporate raiding of employees, however, raises serious legal and financial concerns for everyone involved, but particularly for employees and their counsel.
Poaching a coveted employee or raiding a team is bound to leave behind an angry employer who wants revenge. The hardest job for employee-side counsel is to keep the client from becoming a defendant in a lawsuit against both the employee and the new employer.
Knowing how to prevent or minimize an employee's liability in this situation is critical. Counseling employees on terms and conditions to be negotiated with the new employer before departure will protect them from economic loss and protracted and costly litigation.
Arbitrability Of Sarbanes-Oxley Whistleblower Claims
This article explores the arguments presented by member firms and registered employees, and outlines what arbitration panels have decided. Laurence S. Moy. Pearl Zachlewski, Linda Neilan, and Katherine Blostein. The Neutral Corner, Newsletter of FINRA Neutrals, Volume 1, 2008.
Since the passage of the Sarbanes-Oxley Act of 2002 (SOX), arbitrators handling employment claims may be faced with a throny question concerning SOX whistleblower claims: Should a SOX claim be litigated in court or arbitrated? Ultimately, the question comes to whether SOX whistleblower claims constitute "employment discrimination" claims, and are thus exempt from arbitration under Rule 13201 of the Code of Arbitration Procedure for Industry Disputes (Code). This article explores the arguments presented by member firms and registered employees and outlines what arbitration panels have decided.
Ethics Corner: Third Circuit Vindicates Plaintiff's Attorney
Justin M. Swartz and Cara E. Greene. July, 2007. Ethics Corner is a regular contribution by the ABA, Labor & Employment Law Section’s Ethics and Professional Responsibility Committee.
The Third Circuit recently overturned a district court order disqualifying a plaintiff’s attorney who had conducted an ex parte interview of the defendant’s administrative assistant. EEOC v. HORA, Inc., No. 05-5393, 2007 U.S. App. LEXIS 15705 (3d Cir. June 29, 2007) (unpublished decision). Characterizing the disqualification as “draconian,” the Circuit held that the district court abused its discretion because the lawyer did not violate any ethics rules, and, even if she had, there was no prejudice to the defendant.
The plaintiff’s lawyer, Jana Barnett, represented Manessta Beverly in a sex harassment and retaliation case against a Days Inn franchise and its management company. During discovery, Barnett conducted an ex parte interview of Debbie Richardson, an administrative assistant at the Days Inn. The district court disqualified Barnett for conducting the interview, finding that she violated Pennsylvania Rules of Professional Conduct (“PRPC”) Rules 4.2, 4.4, and 5.7.
The Third Circuit reversed, holding that Barnett did not violate Rule 4.2 because the administrative assistant was not a member of the organization with whom ex parte contact was forbidden. The Third Circuit recently overturned a district court order disqualifying a plaintiff’s attorney who had conducted an ex parte interview of the defendant’s administrative assistant.
Whose Clients Are They? Contacting Putative Class Members
Cara E. Greene and Jill Maxwell, Labor and Employment Law, Vol. 35, No. 3, Spring 2007 www.abanet.org/labor
The prosecution and defense of class actions involve an abundance of ethical considerations. Attorneys must balance zealous advocacy with the governing rules of professional responsibility. For instance, ex parte communications are often an effective and cost-conscious way to glean information, but attorneys on both sides must consider whether contact with putative class members is permissible and, if so, what form that contact may take. With a little forethought, however, lawyers can ensure that they do not overstep ethics rules when contacting putative class members.
Challenges To Law Firm Mandatory-Retirement Policies
Employment law attorney Cara E. Greene writes about Challenges to Law Firm Mandatory-Retirement Policies. This article originally appeared in Law Journal Newsletters' Accounting and Financial Planning for Law Firms, February 2007. For more information, visit www.ljnonline.com. Authored with Gary Phelan.
A 2006 survey report indicated that 57% of law firms with 100 or more attorneys have mandatory retirement age policies. See, L. Jones “Pitfalls of Mandatory Law Firm Retirement,” National Law Journal, May 24, 2006. But legal challenges to mandatory retirement policies at law firms are likely to become more common as baby boomers reach retirement age.
The debate over whether a law firm can have a mandatory retirement age has focused on the threshold question of whether the “partner” is deemed an “employer” or an “employee.” For each class of lawyer, this article explores possible legal remedies.