Case study - director service agreements and incentives

Our client wanted us to look again at the fairly standard employment contracts they had in place for their Directors and senior level employees. There were concerns that, as the company had grown, there had been insufficient attention paid to the fact that senior employees had become increasingly indispensable and there would be large knowledge gaps if any of them were to leave, particularly if they left to join a competitor. We suggested introducing a Long Term Incentive Plan (“LTIP”) and adding protections and benefits into the contracts, so that they were more like “Service Agreements” which would be more typically provided to a company executive.

Client objectives

First and foremost, the client wanted to protect the business and its proprietary information so that it would be legally difficult for an executive to join a competitor and use their knowledge of the company’s confidential information to pass on an advantage to their new employer.

Secondly, to enhance executive benefits and introduce a LTIP.

Finally, to include other protections such as a “whole time and attention” clause into director service contracts, which would prevent the executive having other employment, and introducing a clause which set out the executive’s fiduciary duties to the company, and required them to report their own wrongdoing.

Support we provided to our client

Our team reviewed all the directors service agreements and also drew up rules for a LTIP scheme which resulted in participating executives being awarded shares which would vest after a certain period of service with the business.

We upgraded the contracts of employment to Service Agreements. These included longer notice periods (in this case), and also benefits such life assurance. We ensured that the client kept the relevant executives aware of the proposed changes, so that they were all accepted without issue.

We tightened up the restrictive covenants which were already present in the contracts of employment, and made them more specific to each individual, and more likely to be upheld by a Tribunal or Court if there was ever a dispute. We also reviewed the clauses which dealt with confidential information post-termination.

Action

We have a great history of helping growing businesses to capture the changes that they need in updated Service Agreements. Let us know how you have changed and the differences that you would like to see in your executives’ contracts.