Employment Agreements: Pros & Cons
By Harvey Weiner & Mark Weiner
Partners of Search America®
PUBLISHED IN CLUB MANAGEMENT MAGAZINE & MRM NEWSLETTER
The euphoria of the new job quickly fades when the Board of Directors and newly-hired manager find that they differ considerably in their mutual understanding of responsibilities, authority and the club’s compelling needs. If each party has its own definition of “success” then by what criteria will performance be measured?
As the prospective manager, before accepting that amazing, fantastic, answer-to-your-prayers job make sure that you and the club’s directors communicate and understand one another’s expectations. As a Director you should know that a common reason for the horrendous management turnover in this industry is a general absence of defined goals and objectives, by either party. Boards of Directors are typically so relieved to have someone to whom they can refer all of their built-up anxiety that they encourage the starry-eyed manager to charge blindly into the breech without discerning the most compelling needs of the club as well as the long term vision, if any, of the club’s leadership.
The Best Time to Negotiate the Best Deal
It has often been said that if you don’t know where you are going how will you know when you’ve gotten there? Misunderstandings in the employee/employer relationship can be minimized with an effective employment agreement and job description. The job description defines the club’s expectations, the manager’s authority and mutual responsibilities. By attaching the job description to the employment agreement – presumably the same document by which this manager was selected – and referring to the job description as “exhibit A: the criteria by which actual performance will be measured”, removes the usual arbitrariness from the review process.
The new manager’s value to the club is at its highest just before being hired and the lure of the new club and community is at its highest as well. That’s the ideal time to negotiate the employment agreement. The manager’s applicable skills, experience, talents all come into play when considering his/her value to the club. The challenge of a new club and the anticipation of a new home are emotional factors to be aware of when entering into the negotiations. Those feelings are likely to be replaced with sobering reality once the new manager reports for work. Then the true value of a properly negotiated employment agreement becomes most evident.
Boards typically value a manager’s potential contribution relative to their most pressing needs, as they perceive them, not to the manager’s vital role in the club’s ultimate success. The insightful manager will, therefore, recognize that s/he can leverage the best terms by focusing on the most pressing needs as stated by the club’s directors. Each party’s negotiating leverage is in direct proportion to their hunger for improvement.
To Contract or Not...That is the Question
Some of the benefits of having an employment agreement, with the job description attached, may be mitigated in that an employment agreement goes both ways. The pros:
- Both parties have a concise summary of the terms of employment thereby avoiding future misunderstanding.
- The Board is bound by the terms as set forth in the agreement.
- Generally (but not always) employment agreements provide some level of long-term protection and security for the employee.
There are, however, cons as well. The employee is likewise bound to the terms of the very same agreement. Depending on the agreement’s term a perceived breach of the employment agreement could lead to damages against the employee. If the employment agreement contains such a term, for example, a club may be able to prevent the manager from working during the term of the agreement or within a certain geographic range of the employer’s club or within the club industry in general, particularly if the manager has been privy to trade secrets. If funds are front-ended by the club upon employment of the manager, say as a loan or a signing bonus, that same manager, when departing, might be liable for a prorated reimbursement to the club. Each party to the agreement should make sure s/he clearly understands the mutual obligations, the manager’s duties, authority, responsibilities, criteria by which the manager’s performance is to be measured and what to expect from each other if the match doesn’t work out.
Are the Expectations of the Manager in Writing?
Don’t create the situation where, say six months into the new relationship, each party realizes that this job is really quite different from what was anticipated.
Often overlooked and underrated in the rush to hire a manager, yet the most crucial to long-term success (and its definition) is the job description delineating responsibilities, authority and the criteria for on-the-job performance valuation. Mutual responsibilities, including the board’s to the manager and the manager’s to the club must be clearly defined and committed to writing. The document can, naturally, be modified by future boards through negotiation. In reality though, most job descriptions will contain a phrase like: “and other duties as may be assigned by the Board of Directors from time to time.”
Easily offered, but not often defined, are such issues as the title. Just what is meant, in this particular environment, by the title Chief Operating Officer? Is the manager, in fact, responsible for all aspects of the club or must s/he seek and accept the board’s or a committee’s dictates regarding golf and turf? Can the manager hire and fire the golf pro, superintendent, controller, chef, etc? Since most clubs employ some form of a hybrid definition for their General Manager or Chief Operating Officer it is essential that the position be unmistakably defined. In practice, the job description is used in the search for the new manager, in selecting the finalists and is then attached to the employment agreement of the candidate ultimately hired by our client. That document becomes the criteria by which on-the-job performance is then measured. Shielding both the manager and the club from future misunderstandings contributes to the likelihood of longer term employment.
At Will Vs. Specific Term
Employment law on many states specifies that employment is at-will, meaning that for cause or for no reason an employee’s employment may be terminated without notice. The terms of an employment agreement are intended to supersede that concept to varying degrees.
If the manager’s skill-set is so rare that the club would have difficulty replacing him/her the club may wish to bind the manager to a long term agreement. That assurance might also provide a sense of security to the manager and his/her family by providing an idea of how long they may expect to be in the community. The term, however long, should automatically role over for renewal without the need to renegotiate benefits, severance, bonuses, etc. Naturally, an employment agreement which is subject to termination on an agreed upon number of days of notice is as good as that number of days. If the contract does not address severance in the agreement then the employee may not be entitled to severance pay, whether in lieu of notice or not.
Termination of Employment...Yes, It Could Happen!
Regardless of the term of the agreement you must specify both the reasons for termination and benefits to be provided by the club depending upon the type of termination and the reason. Consider various scenarios: They don’t like you, you don’t like them, the club is sold, closed or the board simply wishes to go in a different direction. If for cause then in the agreement define what is meant by “cause”.
Termination for cause : Regardless of the term specified in the agreement the employer may terminate the manager if the manager does what you agree will be defined as “cause”. Customarily included under the “cause” clause are illegal or immoral conduct, failure to perform duties, extended or inordinately frequent absences, noncompliance with club rules and bylaws, incompetent performance of duties, death, long-term disability, actions which bring embarrassment on the club, and insubordination.
A notice period may be included during which time the manager may be entitled to make an effort to cure the “cause” issue. Termination for cause typically does not grant the employee any right to severance or continued benefits.
Termination for good reason : This is the employee’s equivalent to “cause” and should be just as clearly defined. An employee can usually terminate for reasons that may be defined by counsel as “constructive termination”. This may include a change in duties, authority, title, place of work, reporting structure, club ownership, compensation, an unprofessional, obstructionist or unsafe work environment. Be sure that, if enacted, this clause entitles the manager to full benefits and severance as would have been received for a termination without cause.
Termination for death : Naturally the manager’s employment ends at death but if the manager is entitled to severance this could be paid to the manager’s family upon the manager’s death while employed. Often ignored it need not be a big expense to the club if funded through an insurance policy.
Termination for other reasons without “cause” : A club may want to terminate the manager’s employment despite a term in the agreement. This would be a termination without cause entitling the manager to the full benefits of any negotiated severance. An agreement may contain a clause whereby the parties may agree to waive a notice period of say 60 or 90 days, by releasing the club from the employment agreement if they make appropriate payment to the terminated manager in lieu of notice.
Severance … Termination Can Be Painful but Sufficient Severance Eases the Hurt
Every manager, even those “At Will” should insist on a severance clause in their agreement. Club directors turn over as fast as managers do and trusting the security of continued employment to a potentially impulsive system of governance can be career suicide. When negotiating severance consider the manager’s entire compensation package: base pay, bonus, commissions, benefits. COBRA alone can cost over $1,000.00 a month out-of-pocket for a small family. If you have agreed to three months of base pay, consider bundling the projected value of unearned bonuses for the period, continued benefits for the 90 days then COBRA thereafter. If the job is offshore then absolutely the club should agree, and may, in fact, be legally obligated to repatriate the manager and family to their originating home base.
If the manager is accepting the challenge of a serious turnaround and is willing to give up a secure position elsewhere then the club may find themselves having to agree to a multi year, no-cut agreement, i.e. full payment for the remaining term of the manager’s agreement if s/he is terminated prior to the expiration date for any reason other than “cause”. Clubs that have experienced inordinately high management turnover during the last ten years may have no choice but to agree to this clause and mend their ways if they ever hope to make progress. Sometimes it is not “the manager’s fault”.
Compensation and Reimbursement...
Make sure the details are in the agreement.
Reimbursement for club business expenses is often at the root of misunderstandings. If the manager has check-signing authority, up to a certain amount, specify that amount in the agreement. If dual signatures are required on a check then always have at least three signatories available. Someone other than the manager, along with the club’s Treasurer or President, should sign any check payable to the manager. Specify the dollar amount of general expense, auto, dine-around and any other allowances granted by the club for the manager’s use and indicate the frequency and method of payment. Participation in the Club Managers Association of America, its educational programs and annual conference may be “subject to annual budgeting procedures”.
Every component of compensation should be clearly defined in the employment agreement including sign-on bonus, relocations expenses, compensation, wages, salary, commissions, incentive plans, retirement (portability?), savings plans, the use of club privileges and the value of housing and automobile provided as a condition of employment. To avoid a potentially taxable event consider having the club pay the moving company directly rather than reimbursing the manager.
Incentive plans are usually best designed once the new manager has had an opportunity to independently evaluate the club’s current situation. The new manager, Treasurer and President should then devise an appropriate incentive plan with the understanding that each year or so the goalposts may be moved as former objectives are met and new ones established. Search America customarily recommends that the first year’s bonus should be based on an equal blend of objective and subjective criteria to avoid the demeaning and gratuitous “manager’s tip” decided upon by directors who may remember only what happened most recently. Bonuses should be payable within the month following either the annual audit report or closing of the books for the immediate past fiscal year. The employment agreement should indicate bonus potential, for example “up to 15% of base compensation”.
If a particular benefit is not yet provided by the club, e.g. a retirement plan, put it in the agreement anyway with the statement that the manager will be eligible to participate in such a plan when and if one should be instituted by the club.
Besides base salary, the agreement should address vacation, benefits, allowances, medical, life and disability coverage and its limitations, minimum CPI increases, identify the officer(s) responsible for and the frequency of the manager’s performance evaluations, relocation expenses.
Non-competition covenants are, in many states, unenforceable unless trade secrets are used to compete. Chances are that the manager hired by the club possessed the intellectual capacity and experience to have run a similar club elsewhere and should be permitted to do so again after leaving this club. Prohibiting that individual from earning a living may be seen as simply pejorative and unenforceable.
This article is intended, if nothing else, to convince you that someone other than yourself should be depended upon for good advice when it comes to employment agreements. The club’s attorney may wish to review all such documents before the President signs. The manager should understand, however, that the club’s attorney is not the manager’s attorney. S/he represents the club’s interests. If a trusted, knowledgeable and experienced search consultant is not involved in the contracting process, or if you believe that your interests are being neglected then seek professional counsel before signing an employment agreement. The cost, relative to the upside potential, is negligible.
Finally, one of the first and most revealing indications of a club’s culture and its directors’ respect for their manager is often evident in their hiring practices. Chances are that the way they treat the manager during these negotiations is how the manager will be treated once employed.
Harvey Weiner is the founding managing partner and Mark Weiner is a partner in the firm Search America®, International Board Consultants for Senior Club Management Recruitment and Selection. Since 1974 Search America® has successfully filled over 700 management positions in private clubs worldwide. 800.977.1784 www.SearchAmericaNow.com © Search America
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