It used to be that only corporate royalty, CEOs, presidents and chief financial officers, demanded and received customized contracts that specified employment terms and locked in juicy parting deals or “golden parachutes”. But elite CIOs who have earned the same kind of clout are now learning which terms work to their advantage and which ones don’t.
Take, for example, Manny Moslemi, who was CIO at now-defunct Grand Union Co., a supermarket chain in Wayne, N.J. A four-year employment agreement didn’t protect Moslemi when Grand Union filed for Chapter 11 bankruptcy protection in October 2000. Under Chapter 11, a company’s senior managers become unsecured creditors and get stuck at the bottom of the list of individuals or organizations to pay.
Some CIO contracts include provisos regarding how much severance money is due if a company must start a formal reorganization or liquidation process. A bankruptcy judge would decide whether an executive would ever see that severance, but a legal contract could at least give a departing CIO a fighting chance.
But Moslemi didn’t have that kind of deal. He got nothing when Grand Union folded last March, no salary, no bonus, no health insurance. “I learned a hell of a good lesson,” he says.
On the other end of the spectrum is Wayne Sadin, former CIO at Bank United Corp. in Houston. When Seattle-based Washington Mutual Inc. took over Bank United last February, Sadin walked away with a bundle. His contract netted him twice his annual salary and bonus and continued his health insurance. All of his stock options and other shares vested immediately. “In a 12-month period, I received 10 years’ worth of compensation,” he says.
Some CIOs negotiate custom contracts with unique provisions. For example, Nick Ioli, CIO at The Great Atlantic & Pacific Tea Co. in Montvale, N.J., has a clause in his contract stating that if he’s asked to report to anyone other than the CEO, he can quit and receive his salary, bonus and health benefits for the next 18 months.
Sweetening the Pot
Special extras are often granted during the recruiting process as deal-sweeteners, says Beverly Lieberman, a principal at Halbrecht Lieberman Associates Inc. in Stamford, Conn., which specializes in recruiting IT executives.
Lieberman once helped broker a deal for an IT manager who insisted that the company let him use his own airplane for company travel. He was a pilot and wanted to continue flying.
“You never know till you ask,” Lieberman says.
Sometimes there are trade-offs with these finely worded agreements. A company may restrict an executive in some way but offer a hefty monetary reward in return. Noncompetition provisions are one example of such an agreement.
Loyalty provisions are another example. Part of Kenneth Gerhardt’s contract as CIO at ConAgra Foods Inc. in Omaha calls for him to support the board’s position if another company tries to acquire ConAgra. In return, Gerhardt gets guaranteed employment and compensation, plus early retirement benefits, for three years after any take-over.
Employment contracts also help balance the risk/reward ratio when taking a job at a new company, says Bruce Goodman, CIO at Humana Inc., a US$10 billion health care company in Louisville, Ky.
“I know the upside potential if everything goes really well,” he says. “What’s the downside if things turn out to be hell? What do I want to get out of this to make my move worthwhile?”
Sometimes CIOs and chief technology officers simply participate in the standard employment contract a company offers to all senior executives.
Ron Rose, CIO at Priceline.com Inc. in Norwalk, Conn., has such an arrangement. Filings with the U.S. Securities and Exchange Commission show that except for salary and stock-option grants, Rose’s employment agreement is the same as those of Priceline.com’s CFO, chief marketing officer and others.
Dennis Jones, former CIO at FedEx Corp. in Memphis, says he doesn’t like contracts that give a CIO anything beyond what other officers get. Otherwise, resentment of the CIO could emerge, he says. That’s no good, given that on average, a CIO stays in a position for just 15 months. “I do not believe a CIO should be treated as an exception. That just creates a lot of issues that, frankly, CIOs don’t need to deal with,” Jones says. “CIOs are already an endangered class of employee.”
Marc Rubinger, CIO, Genesis Health Ventures Inc., Kennett Square, Pa.
Key concept: Noncompete provisos, what can and can’t be said and done after
leaving a company.
Contract excerpt: For two years after leaving the company, the “executive shall not, except with company’s express prior written consent, directly or indirectly, in any capacity…establish, engage…any person in any business in competition with company, at any location within 15 miles of any office…or conduct himself in any manner which he would have reason to believe inimical contrary to the best interests of company.”
What it means: If Rubinger leaves Genesis Health Ventures, he can’t work for or help any company that Genesis Health Ventures views as a rival for at least two years. And even then, he’s required not to do anything that could hurt his former employer. The contract also prohibits him from soliciting customers or suppliers of Genesis Health Ventures and from recruiting its employees for two years. Rubinger’s contract puts a 15-mile radius on these provisions; other noncompetition agreements are more prohibitive, stipulating, say, 35 miles. Noncompete clauses are pretty restrictive, but in return, executives often get nice parting gifts. For example, under certain scenarios, Rubinger could receive up to two years’ salary, plus a lump sum equal to the value of some of hi stock options, with other options immediately vesting. He would also continue to receive health insurance and other benefits for up to two years.
Dennis Jones, Former CIO, FedEx Corp., Memphis
Key concept: Consulting agreement, retaining critical benefits after leaving a
Contract excerpt: “The company shall…provide Jones and his dependents coverage under the company’s employee benefit plans to the same extent that coverage existed…before; reimburse Jones for not otherwise reimbursed reasonable and necessary travel and lodging expenses incurred in seeking other employment; provide, at its expense, tax and financial counselling services …\[and\] use its best efforts to provide executive access for Jones and…family…to Disney World and Disneyland.
What it means: When Jones retired as CIO at FedEx in August 2000 and became a FedEx consultant, he hung on to a lot of the benefits he enjoyed when he was working there full time. In a deal that promised him US$48,500 per month through December 2002, he and his family also kept their health insurance, financial planning services, high-speed Internet access and vacation entertainment. Jones didn’t complete the term; he joined Commerce One Inc. in Pleasanton, Calif., as chief operating officer last April. But except for the provision that covered his job-hunt expenses, his consulting contract didn’t win him anything special, Jones says. The provisions, including the Disney passes, were in keeping with what FedEx offers all of its senior executives.
Kim S. Nash is a freelance writer in Yorktown Heights, N.Y. Reach her at[email protected].