Start your CEO job with a good contract

Start your CEO job with a good contract

Based on my experience as a CEO and an Executive Coach

The CEO title sounds glamorous.

Every business graduate aspires to be the CEO of a company one day. But often the CEO job offers not much glamour, but much work.

Becoming a CEO is one thing and keeping the job is another. Many CEOs fail within the first 18 months of holding the role.

The CEO position means you have to consistently work long hours, even more than 90 hours a week.

Being the boss of a company requires almost superhuman abilities. You will be expected to know virtually everything about anything, and ideally from day one. 

You will be isolated. You cannot actually talk and seek advice. Seeking help from others go against the natural structure of being the top executive.

You will be the person that checks in, at least briefly, every single day of every single vacation. You will have to deal with scandals, health problems and the intensifying pressure of the job.

If you had an experience working as the CEO you have a good idea of what to expect. You understand what the deal is. This article is for you to accentuate your attention on what you have been offered. Your contract will be different from your previous one.

If you are a new CEO you must foremost understand your contract, including the ‘small print’ before you consider the job and before you hire an attorney to review your agreement.

The strong employment agreement is critically important to the CEO. It protects the CEO and gives him power to manage the business with confidence.

This is why it is so crucial for you to comprehend your CEO job offer and secure the most important terms in your agreement. 

Here are the terms that must be included in your agreement: 

1. The CEO hires and fires staff

You are excited to start your CEO job. You have been searching for the best candidates for your new executive team. You’ll need your own team to help you fight the diverse internal and external battles that will inevitably come your way. You started your job and then you find out that you are not allowed to replace the existing executive team and bring your own management staff on board. Now you are at a high risk of lasting less than a year.

The CEO contract must include the term on the hiring policy which authorize the CEO to hire and fire his staff exclusively. The rights to replace the existing executive team and bring new management staff on the board is a critical term in your agreement.

You need to be the sole and only person to make the ultimate decisions on hiring and firing your staff. Negotiate a counterpart about the hiring policy and sign it.

2. The CEO job with fully funded operation​ 

Before taking on your offer you must have a clear picture of your company’s financial situation. 

If you are offered the CEO job with turnaround situation the company must have enough money in the bank to pay terminations and to implement necessary initial changes. If no funds available, you’ll end up being stuck with toxic staff members and no ability to innovate your business operation. It will then only be a matter of time before their continued failures end up being viewed as your fault.

If you are being offered the CEO position with a startup you must understand your initial role. Are you required to raise funds for the business operation or are the funds available? 

The fundraising is the single biggest challenge any company executive could undertake. The role of a CEO is a significant. Fundraising is an altogether different round. By trying to be both a CEO as well as the lead person for fundraising, you will inevitably neglect other urgent matters.

Most companies separate these two tasks. Either you to be hired as the CEO to run a fully funded operation or your main function will be aimed at fundraising.

Unless you get offered a large amount of compensation and you have previous skills to do both. In this case you must be fully aware of the degree of difficulties before signing the contract.

You need to clarify a company’s financial position, both operationally and from capitalization standpoint. And you need to know the main role for your job offer before signing your agreement. If funds are not available, you might turn down your offer or negotiate additional pay for your fundraising work.

3. The complete and comprehensive CEO compensation package upfront 

The well-established companies will automatically give you a complete compensation package as part of their standard HR procedure. This point is probably primarily relevant for start-ups and earlier-stage companies. In any case, you must understand all components reflected in your CEO compensation package.

• Base Salary is the first important part of the CEO compensation. It varies substantially, depending on the type of industry, years of your experience and other factors. You want to make sure the company pays your salary in cash.

• Long-Term Incentives contain the largest part of CEO compensation plans. They are rewards for CEO performance over a three- to five-year period. Often long-term incentives based on total returns to shareholders, earnings per share, return on assets or similar benchmarks. You must undoubtedly understand the requirements for each performance period to make sure that the conditions are feasible. The bar for rewards could be very high and will be almost impossible for CEOs to meet the threshold. In this case you have two choices: either you have an employer lower the bar or don’t count much on this income and look somewhere else within your contract to get additional pay.

• Employee Benefits. Your package will include benefits for CEOs. Typically, they are similar to employees within the company. Additionally, your company may offer CEOs programs for health insurance, life insurance, special retirement plans or others.

• Perquisites are designed to compensate CEOs for extra demands on their time. These perks are generally noncash fringe benefits that provide an immediate financial reward and are given in addition to wages, commissions or incentives. Perks may come in the form of hired drivers, the use of private planes or security at home or at work.

• Severance. Your company can terminate your agreement earlier for an unpredictable reason. Therefore, your package should include suitable severance. You want to get at least one year’s salary. Make sure that your offer letter also gives you the ability to quit for good reason.

To obtain a complete and comprehensive CEO compensation package upfront you must understand the structure of your pay. If you have been offered less than you are worth do not sign the contract. Negotiate your payment. Present your case and defend your terms or look for alternatives.

4. The CEO succession plan

The smart succession plan is critically important to the CEO. Not planned or poorly managed CEO succession is one of the biggest causes of financial damage in the corporate landscape. It also causes a lot of human misery. If you don’t have an alternative plan, you can easily be pushed over and a difficult situation can become even more difficult.

You need the CEO succession plan to be part of your agreement. It protects you and allows you to focus on the business without concerns.

You want to ensure that no one ever has too much power over you because of you being dependent on any position.

The CEO succession plan could present you with potential opportunities. Stepping down as CEO could be used to create an arrangement that allows both parties to continue to work together in a different form. Plan this stage of your employment with a positive mindset.

You need to have a carefully considered contractual arrangement about the succession planning in your employment contract. It should be an arrangement between you and the company which indicates a structure of any separation process and describes how any separation process should ideally look like. It must be agreed by the board before you sign your CEO employment contract.

5. In conclusion

Know Your Contract!

Don’t accept the initial offer if it’s less than you feel you’re worth. Negotiate key items.

Don’t discuss salary too early in the interview rounds. Focus on what you bring to the table, not how much you need to make.

Keep it professional. Deal with the right person. Specify all the details. Find the way to mutually agree on main terms. 

Get it all in writing.

Demonstrate your skills in negotiation. Successful negotiation of the CEO job offers prepares you to a successful leadership of your new business.

Any reputable employer will want you to sign a contract for their own protection. You need a contract for your protection as well.

Don’t give up your current job until you have that signed contract in hand.

This article is based on my experience and lessons I learned from working with my CEO clients. I would appreciate your feedback that may help those who are in position to accept a CEO job.