Originally Posted by
WillowRun 6-3
Executive employment agreements, which are the vehicle for tax-deferred compensation, stock,option incentive comp., and severance payments under various categories of reasons for termination of employment, unquestionably are not the norm in the American economy and workforce. Even highly educated and technical occupational or professional roles - such as Engineering - rarely see these types of agreements.
In my law firm career I worked on several (and a few more were at the heart of litigation files when various types of things went bad); there are legal specialists in tax law and employee benefits who go after chapter and verse about technicalities, sometimes abstruse, in tax deferral, vesting, et cetera. Despite verging into the pedantic, I'm noting this because invariably this SLF/attorney reflects on the fact that while I might be "running" 6 or 8 or ten good-sized legal files in a firm, do I have any idea, any notion, of what it's like to get out of bed every morning and "get to work as CEO of", for instance, let's say as relevant here, RTX? So right, wrong or indifferent, the rather quite large contractual compensation packages of senior management at massive companies doesn't rile me up; with massive responsibilities come massive rewards.
But wait. Is it not widely acknowledged, by the aviation sector cognescenti as well as sensationalist and diligent press, that in the case of Boeing, very lucrative financial rewards flowed to executives with minimum (if any) claim to having produced great results throguh their leadership and direction of strategy? How to solve for a form of agreement which would protect against (just to pick on him here ) a Dennis Muilenburg walking away rather "fully loaded" while also providing incentives for honest-to-god superb engineering insight and business judgment producing great results? - that's the question, in my view. (I'll stand to be corrected if the ex-CEO in fact didn't exit with great financial take-aways.)
The solutions will not be found in contortions of the defintions of conditions for levels of severance payments. If the executive leaves under a discharge "for cause", little or no severance - but "cause" is a very high bar. And there often are complications when the resigning , or discharged, employee has potential legal claims to bring against the company (or a clever attorney who can conjure up the appearance of such potential claims). This leads to a cat-and-mouse thing of "we will pay more severance but you have to sign a valid release and waiver of all claims against the company." This truncated (and pedantic, sorry) overview leaves out several layers of complications.
But something else from private equity transactions might help, might even work pretty well. Let's say you own a business, and it's profitable and stable, and you find a buyer for it. The buyer wants to keep you on as an employee post-closing (of the transaction) because, after all, it was your smarts, drive, moxie, skills and abilities, and good will toward the business from customers and suppliers that made it profitable. So, .... buyer and seller agree on a sale price BUT only part is paid at closing, and two or three tranches are paid annually ONLY if the business, in each of those successive years, meets certain target financial results. The deferred sale price is often referred to as an "earn-out" - seller keeps working the business to targeted results, which continues to earn profits, and so does seller earn each annual tranche of the deferred sale price.
Why not adapt this form? The executive gets something under the contract for taking on a huge job, but the biggest parts of the financial package all are deferred, depending upon achievement of defined results.
Downside: if anyone thinks this would be easy to draft into an actual corporate agreement format, let alone for Boeing, I'll stand to be corrected. I mean, talk about making lawyers work hard, and lawyers sometimes earn what they receive, too.