The main reason why individuals have entered into a written compensation agreement is that written agreements generally offer broader protection than company statutes or legal provisions. Most statutes provide, for example, permissive compensation, while most written agreements are mandatory. In addition, the rights listed in the agreement are enforceable obligations that cannot be changed or terminated without the agreement of each executive. This type of insurance policy is commonly referred to as “Side A” insurance. The idea here is to protect directors and officers from having to pay the IRS in person if the company is not in a position to go bankrupt. 2. Remember that compensation agreements do not apply only to state-owned enterprises. In addition to D-O coverage for private companies, business leaders and private officers also need these agreements. This is particularly the case for companies moving towards an IPO. An agreement that compensates board members also enhances the attractiveness of a director or officer position in your company at every stage of their life cycle. Even if the company has acquired insufficient D-O insurance and expires while the business is still solvent, a good compensation agreement will ensure that legal fees are advanced and that invoices are paid by the company and not by individual directors or senior executives.
In addition, O.O. policies are the subject of annual negotiations and conditions may be less favourable. Compensation agreements do not allow companies to change them unilaterally to the detriment of directors and managers without their consent. Business leaders and executives (“D-O”) face significant personal exposure in litigation or investigation. For this reason, prudent D-O companies use all available legal protection provisions, including charter rules, insurance and compensation agreements. Readers who want to learn more about written compensation agreements would like to check the May 26, 2015 contribution on the blog of the law firm Securities Matters of the law firm Mintz Levin (here), which explains the importance of a separate written compensation agreement for company employees and examines the main characteristics that this type of agreement should contain. Here is a previous memo from the law firm Alston-Bird, which deals with compensation and development in general and the need for written compensation agreements in particular. 4. Check compensation agreements every two years as household products. It is a mistake to rely only on the form of the compensation agreement put in place for all directors and executives when the company went public a few years ago. Things are changing, and what might be called “the protection of the status of the species” evolves over time. But in addition to legal benefits, compensation agreements offer psychological services that cannot be provided by legal, charter or statutory provisions.
Compensation agreements provide the security that accompanies the maximum protection that is legally possible for D-Os. If you are or will be an officer, consult qualified consultants when developing and negotiating a compensation contract tailored to you and your business. A compensation agreement in this regard is a contract between the individual director or officer and the company that the director or official serves. These agreements promise (1) lawyer`s fees in advance and (2) loss (compensation) on behalf of a person if he is mentioned in an action in his or her capacity as director or official of the company.