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Executive Compensation Drafting Tips for Today’s Litigious World

Fulcrum Partners Deferred Compensation News

If you read the Deferred Compensation News, you know we regularly carry important insights from attorney Michael S. Melbinger, Winston Strawn. In his most recent blog, Mike shared two tips that employers should always consider in drafting executive compensation terms, releases, and related documents regarding an executive’s compensation.

And of course, Fulcrum Partners always advises you to consult your own tax, legal, and accounting advisors.

Executive Compensation Drafting Tips for Employers

A recent federal district court case out of New Jersey raises two drafting points on which I have previously blogged, and I decided that another mention might be in order. In Weller v. Linde Pension Excess Program (unpublished), the plaintiff had no sooner reached a $1 million settlement with his former employer over a potential whistleblower claim, when he sued again, arguing that the settlement amount should have been taken into account in calculating his supplemental pension under the employer’s Pension Excess Program. The court did not make a final decision on the merits of the case but rejected the employer’s attempt to have the case dismissed, thereby allowing the (costly and time-consuming) litigation to continue.

The two drafting tip takeaways from this case are as follows:

First, counsel should draft the definition of “covered” or “included compensation” in an excess or other non-qualified retirement plan to be very precise and, ordinarily, the definition should expressly exclude any dollars not paid as regular base salary or annual cash bonus. Most readers would find the definition in the Pension Excess Program to be clear and not include a litigation settlement payment, but somehow, this court found ambiguity.

Second, when settling a claim or drafting a release, an employer should be careful to address (and probably specifically list) all issues and elements of compensation to be paid to the former employee. Otherwise, further litigation—like this—could ensue.

If they have sued you once, they certainly won’t hesitate to sue you again.

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