The Effects of Termination, or Termination Benefits, clause in an Executive Employment Agreement defines the benefits payable, if any, upon the Executive's termination. The clauses are highly negotiated and variable. Typically, the clause provides for benefits in the event that termination occurs at the election of the company through no fault of the executive.
In the event that the executive resigns, no payments are generally made other than the obligation of the company to pay accrued, but unpaid compensation and benefits up to the time of termination.
The parties should consider the effect of termination of all compensation and benefits payable under the agreement, including vacation, insurance and other non-cash benefits.
Effects of Termination
Termination without Cause, for Good Reason, Due to Disability, or Upon a Change in Control. If the Executive’s employment terminates Without Cause, For Good Reason, due to Disability, or upon a Change in Control, the following terms will apply:
Salary. The Company shall [continue to pay the Executive’s then-current Base Salary through the remaining term of employment |OR| pay to the Executive an amount equal to $[SEVERANCE PAYMENT AMOUNT]].
[Bonus. The Company may pay the Executive a Bonus calculated on the remaining term of employment. The Bonus, if declared by the Company, will be equal to the greater of (i) the Bonus for the year before the termination, and (ii) the Bonus that the Executive would have earned under the Company's bonus plan in the year that the Executive was terminated had the Executive remained in its employment. This post-termination Bonus will be paid when it would normally be paid in accordance with the Company's usual practices.]
Stock Options. Any unvested stock options will immediately become vested. The Executive will have no right to any future options.
Termination for Cause, due to Death, or by Voluntary Termination. If the Executive’s employment terminates for Cause, due to Death, or by Voluntary Termination, the following terms will apply:
Salary. The Company shall pay the Base Salary up to, but not after, the termination date.
Bonus. The Executive will not be entitled to any Bonus that was not fully earned and payable before the termination date.
Stock Options. Any stock options will continue to vest only up the termination date.
Return of Property. Upon termination or expiration of this agreement, the Executive shall return to the Company all Company property, both originals and copies, under his or her direct or indirect control.
The Effects of Termination clause is a stand-alone clause in 50% of Executive Employment Agreements.
Negotiating Severance Packages
"With regard to severance pay, we usually think in terms of time -- a certain number of weeks or months of base salary, for starters. One underlying rationale for paying severance pay is the length of the employee's service to the company. Another is the amount of time required to permit the employee to find an equivalent position without suffering economic hardship. At the higher levels of the corporate ladder, these concepts carry less weight than do more broad notions of appropriateness -- usually based on local or industry custom." How Do I Get A Better Executive Severance Package? A Lawyer's View, by Gary A. Paranzino
See, also Severance Practices Around the World