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Strategies for Negotiating Your CEO Contract

January 25, 2021 By Rasheeda Childress
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When you get an opportunity to step into the lead role at an association, negotiating a CEO contract has many moving pieces—from positioning yourself to get the best offer to finalizing the optimal contract language. All of it requires confidence and a bit of personal reflection.

While a long career teaches much about the process of securing a new job, when association professionals move into the CEO role, it’s a whole new ballgame that involves signing a contract. That’s why aspiring CEOs, or CEOs moving to a new organization, need to understand key contract provisions and adopt a negotiation mindset.

Pamela J. Green, an executive coach and speaker, says that contract negotiations begin, in a way, in the interview phase. “You want to make sure you exude confidence, so they can see the value, the dollar value of your brand,” Green says. “All those things can make or break that negotiation process.”

Jeffrey Tenenbaum, managing partner at Tenenbaum Law Group, who has negotiated many association CEO contracts, says the process has some common elements but varies based on each candidate. “Contract negotiations for a first-time CEO are going to look very different from a CEO veteran going into their fourth CEO job,” Tenenbaum says. “There is no one size fits all.”

Prospective CEOs considering an offer and heading into the negotiation process should have an eye on what they want their life and career to look like down the road.

Compensation

Typically, one of the first things a prospective CEO thinks about in contract negotiations is compensation. Green and Tenenbaum advise reviewing the organization’s IRS Form 990s to see what its previous CEOs were paid. Also look at benchmark salaries for similar organizations in similar markets.

Tenenbaum notes that compensation is more than base salary. “Other things that come into play are: How does that base salary increase from year to year? Is there a guaranteed minimum—5 percent? Is the increase tied to inflation, or is there no guarantee?”

Candidates should also consider that compensation can be structured a variety of ways. “The association is only willing to pay so much,” Tenenbaum says. “You’ve got to pick. You’re not going to max out on everything. Is it current compensation base salary? Do you think you can do well on bonus performance? It will usually be capped at 10 to 25 percent of the base salary. For some that are doing quite fine and are interested in [income] down the road, then tax-deferred compensation may be a priority.”

Term and Termination

The term of the contract and its termination provisions go hand in hand, Tenenbaum says. “The length of the initial term is one key factor. Most are in the two- to five-year range,” he says. But “what happens after that? It may end, period, with no compensation. Or, once it ends, the exec gets some form of severance pay. The other option is the contract automatically renews, but either party can give notice that it will not renew, either with severance pay or without.”

The term of the contract and what happens when it ends can also affect salary. “A first-time CEO that has confidence they can take the association to great new places—but doesn’t have the significant experience that would lead to a higher starting salary—might be better doing a short-term contract to force the renegotiation for more money,” Tenenbaum says. “As opposed to an exec who gets a really good deal upfront, so an auto renewal would work best.”

A contract can terminate either “with cause” or “without cause.” “Termination for cause sounds simple and easy: The exec does something bad; they should be able to get fired without any further pay,” Tenenbaum says. “I have never seen the same ‘cause’ definition in the contracts I work on. The definition of cause is critical. It’s in the association’s best interest to have as broad a definition as possible. When representing the exec, I like to make it as narrow as possible.”

Termination-with-cause clauses should have a “cure provision, so you have to put the exec on notice,” Tenenbaum says. In termination-without-cause agreements, severance pay of 6 to 12 months is typical. CEOs often ask for associations to pay for continued health insurance premiums under COBRA, but Tenenbaum notes, “when I am representing the exec, sometimes we can get it, sometimes we can’t.”

Negotiation Mindset

In contract negotiations, typically the association sends out the first offer and contract terms. Green says that prospective CEOs considering an offer and heading into the negotiation process should have an eye on what they want their life and career to look like down the road.

“Look toward the future,” she says. “What is my life plan? Start thinking three to five years out: Where do I want to be, from a life perspective, a compensation perspective? Maybe they are looking to travel more, spend more time with family, buy a house somewhere different.”

That kind of reflection will put candidates in the right mindset to evaluate the first-offer contract. “I ask the exec to go through it and see what things give you heartburn,” Tenenbaum says. “What things do you want structured different? Then we’ll have a discussion and talk it through, where they want to push back and what things are deal killers.”

The most crucial negotiating tool candidates have is the ability to walk away, Green says. “You never go into a negotiation not prepared to walk away from it,” she says. “If you’re not prepared to walk, you’re doomed from the start because you’re too desperate.”

For that reason, Green advises clients to store up a rainy-day fund. “You have to put money away,” she says. “You can’t walk away when you’re in a deficit. You walk in the door feeling undervalued because you feel you have to take that job.”

Rasheeda Childress
Rasheeda Childress

Rasheeda Childress is a former editor at Associations Now.

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