While we may not know precisely when (or how) CEOs or not-for-profit leaders transition out or retire, we do know that their exit is inevitable. And while not every exiting leader may need or require an exit agreement, it’s beneficial to understand the reasons and planning required to negotiate it — ideally far ahead of the leader’s actual exit.
The use of exit agreements occurs most often in four ways. Most aredrafted by an attorney working with an executive, a few board leaders, and perhaps an accountant who specializes in nonprofit compensation. Boards and executives can explore these four exit agreements if the situation calls for it.
Catch-up Agreement
This agreement is a monetary package acknowledging that the executive’s salary has been significantly below market for a long period and/or the organization’s retirement contributions have been low or nonexistent.
Incentive (to stay longer) Agreement
This agreement creates an incentive to encourage the departing executive to remain as an executive for a defined time, for purposes important to the organization’s welfare.
Post-Retirement Services Agreement
In this agreement, a contract for services is negotiated that defines the leader’s role after he or she moves out of an executive role. It is sometimes used as a bridge for a period of time to support the executive until an official retirement, or to allow the leader to continue consulting on a vital project.
Honorific Agreement
This agreement is a memorial, in writing, along with a one-time, board-approved monetary gift recognizing or honoring a departing founder for a long tenure and/or efforts above and beyond the call of duty.
Organization board members and other leaders will need to view exit agreements in light of their financial capacity as well as terms governing their mission and tax-exempt status. They should also consider how this agreement will impact the expectations of future executives.
Contact your engagement partner at 415-957-9999 to find out how to structure your not-for-profits executive compensation agreements.
Source: Nonprofit Quarterly
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