Reading an Executive Contract: Notice, Termination and Change of Control
Most senior leaders read the offer letter closely and the contract quickly.
That is understandable. By the time the contract arrives, you have been through months of interviews and negotiation. You are relieved, the start date is set and the new CEO is keen. The package looks right, so you sign.
The trouble is that the clauses people skim are often the ones that matter most later. Notice, termination and what happens if the business is sold rarely come up in the first year. When they do, they can decide whether you leave with security or with very little.
This article is general information only, not legal advice. Employment law differs between Australia and New Zealand, and contracts vary widely. Always get advice from an employment lawyer before you sign. The aim here is to help you know what to look for and what to ask.
It covers the clauses that matter most, notice and payment in lieu, termination without cause, change of control, what happens to incentives on exit and when to get legal advice.
The clauses that matter most
Senior contracts can run to many pages. These are the sections worth reading slowly:
Role and reporting line. Is the title, scope and who you report to clear?
Remuneration. Base, superannuation or KiwiSaver contributions, and how reviews work.
Incentives. Short-term and long-term incentive terms, often in separate plan rules.
Notice. How much notice each side must give, and whether it is equal.
Termination. For cause, without cause, redundancy and incapacity.
Change of control. What happens if the business is sold or merged.
Restraints and confidentiality. What you cannot do after you leave.
Garden leave. Whether the employer can ask you to stay home during notice.
Probation. Whether it applies and how it works.
Policies. Whether company policies form part of the contract.
Read the contract alongside any incentive plan rules and policies it refers to. The detail is often in those documents, not the contract itself. For a plain guide to the parts of a package, see finance offer packages explained.
Notice and payment in lieu
Notice is the period either side must give to end the contract. At executive level, it is usually longer than for other staff, and it can differ depending on who gives it.
Points to check:
Is notice the same both ways? Some contracts ask the executive to give more notice than the employer.
Can the employer pay you instead of letting you work the notice? This is called payment in lieu of notice.
What does payment in lieu include? Base only, or base plus superannuation, KiwiSaver contributions, car allowance and other benefits? It can make a big difference.
Does notice change during probation? Often it is shorter in the early months.
Can you be placed on garden leave? If so, you may be paid but unable to start a new role until notice ends.
Longer notice can protect you if the employer ends the contract, but it can also slow your next move. A search firm may find it hard to place someone who cannot start for many months. See the long notice period for executives.
A simple question to ask: “If either of us ended the contract next year, what exactly would happen, step by step?”
Termination without cause
Most contracts set out how the employer can end your employment for reasons other than serious misconduct. This might be called termination without cause, termination on notice or similar.
What to look for:
Notice or payment you would receive.
Any additional payment, sometimes called a severance or termination payment.
How redundancy is treated, and whether it is covered by the contract, a policy or legislation.
Conditions, such as signing a release or agreeing to an announcement.
Rules on dismissal, redundancy and consultation are set by law in each country and are different in Australia and New Zealand. What a contract can and cannot do also differs. That is a key reason to get local legal advice.
Also look at how “cause” is defined for summary termination. A very broad definition can give the employer room to end the contract without notice for reasons you would not expect.
Change of control
A change of control clause covers what happens if the business is sold, merged or a new owner takes a controlling stake.
This matters most in listed companies, private equity backed businesses and organisations in a sale process. As a CFO, you may lead the sale and then find your role is no longer needed.
Questions to ask:
Is there a change of control clause at all?
Does it give you any right to leave if your role changes materially after a sale?
Is there a payment if your employment ends within a set period after the sale?
What happens to unvested incentives on a change of control? Do they vest, lapse or roll over?
Is there a retention payment to keep you through the sale?
These terms are often negotiable before you sign, much harder to negotiate after.
What happens to incentives on exit
Incentive plans usually have their own rules about leaving. Many senior leaders do not read them until it is too late.
Typical approaches include:
Good leaver and bad leaver. Different outcomes depending on why you leave. Redundancy might be a good leaver event, resignation might be a bad leaver event.
Pro rata treatment. You keep part of an award based on time served.
Board discretion. The board decides at the time. This gives you less certainty.
Forfeiture. Unvested awards lapse when notice is given.
Check whether a short-term bonus is paid if you leave before the payment date, even if you worked the full year. Check whether long-term awards are tested at the normal time or on exit. For more on how exits are agreed and announced, see executive exit agreements and announcements.
How search consultants see it
When I worked in executive search, contract negotiation was usually the last step, and often the most rushed. Candidates had pushed hard on base salary, then signed the contract within a day.
Sometimes the consequences showed up later. A business sold within a couple of years, with no change of control protection in place. A bonus that lapsed because the executive left shortly before the payment date. In most of these cases, nobody had read the clauses closely at the start.
The candidates who handled it well treated the contract like any important business document. They read it, made a list of questions and asked for a few sensible changes. Clients rarely minded. Most expected it from a senior hire.
When to get legal advice
Get advice from an employment lawyer before you sign any senior contract. That is especially important if:
The contract includes a long restraint, a change of control clause or complex incentive rules.
The business is in a sale process, under private equity ownership or listed.
You are moving between Australia and New Zealand, where rules differ.
The contract refers to policies or plan rules you have not seen.
Anything is unclear, or a term feels one-sided.
A lawyer can explain how the clauses work under local law and suggest changes. The cost is small compared with the value of the role.
Bring a short list of questions to the meeting. It makes the advice faster and more useful.
Raising changes without souring the offer
You can ask for changes and still start well. Keep it professional:
“I am very pleased to accept the role. My lawyer has reviewed the contract and suggested a few points to clarify, mainly around notice and incentives on change of control. I have listed them here. Can we find a time to talk them through?”
Focus on two or three points that matter most. A long list of small edits can make you seem difficult.
A quick self-check
Do you know exactly what notice applies, both ways?
Do you know what payment in lieu includes?
Have you read the incentive plan rules, not just the summary?
Do you know what happens if the business is sold?
Have you booked time with an employment lawyer?
Your next step
Before you sign your next contract, list five questions using the sections above and take them to an employment lawyer.
If you want help weighing a senior offer and the terms that come with it, my executive career transition support helps senior leaders make well-judged moves with their eyes open.
If you have a senior contract on your desk and want to think it through, book a complimentary Clarity Session.
