Negotiating a senior executive package

Recruiting the right senior executive can be an immense benefit to a company if they bring the right mix of skills, experience, and contacts to the business. It is not uncommon for the recruitment process to include informal discussions of terms, conditions and incentives.  Failing to capture such casual agreements and to spell them out in detail in the employment contract can lead to problems down the track if there is a misalignment of understanding.

‘Remuneration packages and contractual terms for senior executives can be complex. So, investing time and resources in the negotiations and in preparing a detailed contract is well worth it’, according to Elizabeth Bartle, a partner in the employment team with Ingram Winter Green. ‘Not doing so can prove costly and damaging to the business and/or the executive’s career and at worst, ends in litigation.’

Directors and Companies Act 2006

The Companies Act 2006 sets out directors’ duties and the law on directors’ involvements in companies, and our corporate team can advise on all aspects of Companies Act requirements.

In this article, Elizabeth highlights a number of key elements in any senior executive’s contract and remuneration package, and she points out the employment law considerations.

Notice periods

Employers may want the executive to agree to long notice period to protect the time and resources spent on recruitment and training and to afford the employer sufficient time to find a replacement. On the other hand, if the employer may want the flexibility of a shorter notice period yet this may not provide sufficient comfort to the executive.

The executive may resist a long notice period if they feel it effectively hinders them from finding a new role. However, long notice periods can become a form of financial protection for the executive.

Negotiating notice periods is therefore frequently a balancing act but it is worthwhile weighing up the risks to each party at the outset. Employers should also bear in mind that a directors’ notice period of more than two years must be approved by the shareholders.

Insurance and indemnities 

Companies are restricted by the Companies Act 2006 in how far they can indemnify their directors against liability arising from the director’s actions. For example, the company cannot indemnify them against their negligence or breach of duty. Instead, board directors should consider if suitable directors’ and officers’ insurance is in place and ensure that this is reflected in the contract. It may be sensible for the insurance coverage to continue after the end of employment.


Bonus payments can make up a very significant part of the remuneration package, and also provide fertile ground for disputes over calculations.

Bonus provisions need to be crystal clear to ensure they reflect the deal agreed and to minimise the risk of disputes arising at pay-out time or on departure. The terms of the bonus may be described as discretionary but this will not guarantee that the employer has complete discretion as to whether to award a bonus or as regards the amount of the bonus. A common cause for contention is the extent to which a bonus is due when the employee is serving their notice period or after they have left.

The terms of entitlement to a bonus, and the way in which the amount will be calculated must be spelled out, for example if sharing a pool of cash based on a percentage of pre-tax profits or being based on personal performance or company profits.

Incentive-based schemes

Other incentive-based schemes, such as share option schemes and long-term incentive schemes also need to be carefully drafted, particularly for any ‘good leaver’ or ‘bad leaver’ provisions, which determine the executive’s entitlement on exit.

These are usually dealt with separately to the employment contract, and employers and executives should obtain tax advice on these schemes.

Other perks

The remuneration package may include other entitlements such as permanent health insurance, life assurance, private medical insurance, a car and associated running costs.

Any conditions attached to receiving such benefits, whether related to a time period or performance, need to be set out in detail.

Restrictive covenants

There is a general implied duty to act in good faith towards the employer, which mostly ends when the employment ends, but contracts frequently restrict an executive’s outside business interests and activities in more precise terms.

Often more contentious, are any restrictions on exit. These covenants aim to prevent the executive from doing certain things after they have left the company which could be damaging to the company. These include working for competitors, poaching business or staff, accepting work from a client of the former employer or setting up in competition. To be enforceable, these restrictions must only go so far as necessary to protect the company’s legitimate business interests and must not be an unlawful restraint of trade.

On a related note, companies frequently seek a warranty that the executive is free to work for the company and will not be in breach of any court order or contractual restriction with a previous employer. This is to protect the company in case it gets pulled into any litigation and accused of inducing the executive to breach their previous contract.

Pitfalls to avoid

Problems typically arise when it is not clear exactly what has been agreed between the executive and the company. This may be because the detail was not worked through at the start of the relationship or was not set down properly in writing, or a combination of the two. For example:

  • What benefits or bonus, if any, is the executive entitled to receive when given a payment in lieu of notice?
  • Can the company withhold a payment in lieu of notice if it discovers it could have sacked the executive for gross misconduct?
  • Is it clear in what circumstances an executive would be a bad leaver or a good leaver for determining the price paid to a departing executive for their shareholding?
  • Are the restrictive covenants specific to the individual’s activities, going no further than necessary to protect specific legitimate business interests?
  • Do references to a long-term incentive or bonus scheme inadvertently create a contractual right or limit the discretion of the board?

How we can help

We advise both companies and executives on negotiating packages and ensure the agreed terms are properly captured to minimise the risk of a future dispute. For further information, please contact Elizabeth Bartle in the employment team on 020 7845 7443 or email

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.