We have recently encountered some organizations who provide only a verbal contract for their CEO. They argue that since Illinois is an at-will employment state, verbal contracts are acceptable. We strongly disagree, and strongly recommend that you have a written contract. Here are some important reasons why:
- You can make sure you and your CEO agree on all the salary and benefits they should receive, and that the term is at-will.
What does at-will employment mean? Illinois is an at-will employment state. This means that either party to an agreement can terminate it at any time, with no reason. If you have agreed to a certain term of employment, the written agreement should state it. If you expect certain notice from the CEO that he or she is leaving, the contract should so state.
- You can describe the Chief Executive’s duties. You can incorporate a separate job description, and incorporate any relevant information from an employee handbook.
- What compensation and benefits will the organization provide?
- What business expenses will you cover?
- Will there by an annual performance review? What procedure will you use?
- What happens if the IRS determines that compensation or benefits are an excess benefit transaction? Nonprofits should periodically compare their CEO’s compensation, meaning salary and benefits, to CEO’s of other similarly situated organizations. If the IRS concludes the compensation is excessive, they can impose penalties.
- What about a noncompete or confidentiality clause?
Organizations that provide only verbal employment agreements often don’t think about these issues. You can make life easier for everybody involved if it is in writing.
If you need assistance in drafting or review a CEO’s contract, please give us a call.
