Most top business leaders agree an executive employment contract is part of every c-suite placement. So why shouldn’t all chamber of commerce CEOs have one too? An employment contract outlines what the board expects from the CEO and what the CEO can expect as part of their new role from a compensation and benefits perspective.
If this is the first time you’ve applied for a CEO position or if your board and staff are new and you’re looking to create one, knowing best practices can help ensure you have a contract that benefits the candidate and the chamber.
Administrative Note:
Hiring a chamber CEO is one of the most significant undertakings in the advancement of a chamber, and the employment contract is a critical document. The contract should be clear, fair, and balanced between the candidate and the board’s needs and requirements. It should also be concise. The more legalese you use, the less likely it is to be understood.
To avoid issues down the line, keep the language as basic as possible and make good use of headers for organization. A well-drafted, concise employment contract creates the foundation for a successful relationship between the chamber board and its chief executive officer. This is not a time to try to get away with something.
At the end of the negotiation, you want both parties to feel well-served and excited about the partnership and leadership.
If something radical occurs after the contract is signed—something that changes how the chamber does business—that could impact the bonus structure or any other part of the contract, the changes should be negotiated/added immediately, and parties should sign off again. It’s a good idea to review contracts periodically to ensure stipulations are followed. No one wants to be on the wrong end of that.
It may be possible to address these changes with an addendum section that does not require a complete rework of the original contract.
What Should Be Included in a Chamber of Commerce CEO Employment Contract?
A good chamber of commerce CEO contract protects both parties and outlines expectations for performance as well as what will happen if there is a communication breakdown. The employment contract also sets forth how much authority one person will have over another.
The document is an important part of the hiring process and while there are commonalities in all contracts, each should be examined thoroughly. Each chamber is different; their by-laws are different; and budgets are different.
A typical Chamber CEO employment agreement or contract should include the following items:
Position Description: Job Duties, Responsibilities, and Key Performance Indicators
Fiduciary Duties
Term/Length of Employment/Renewal Options
Compensation, Benefits, Allowances, and Bonuses
Expense Reimbursement and Relocation Assistance
Performance Review Process
Termination and Severance, Resignation and Arbitration
Position Description
Term/Length of Employment/Renewal Options
While employment laws are largely governed by the state and you may live in an at-will state that allows for termination without cause, most employment contracts have some stipulation about term of service, length of position, and renewal of contract. What is legal/lawful will vary by where the position is located.
Often, the initial term of a CEO contract is between 2-5 years. However, some contracts are drafted using the at-will language and a term will not be specified. If a term is listed, the agreement should spell out what happens at the end of its duration. Does it expire with no obligation on either party to continue employment? Can parties negotiate extensions if both want to? Do the parties rework the dates and signatures at that time or is it advantageous to renegotiate the entire contract?
Some contracts renew automatically without notice to the contrary. For example, if the board does not provide written notice of the contract termination at least 90 days before the initial term expires, the agreement might renew automatically for two more years.
Termination and Severance, Resignation and Arbitration
Again, if you live in an at-will state, termination may be without cause. How a CEO may be terminated should be detailed in the by-laws. It varies between requiring a full board vote to leaving it up to the executive board.
There are typically three ways in which the agreement can be terminated. The reason impacts potential severance pay.
Notice from the CEO
Professional courtesy is important in these situations as launching a search for a CEO may require months. If there is no term listed, 30-60 days written notice of impending departure is good practice. If not otherwise stipulated, the notice time given should take into consideration the hiring cycle and lead time required.
If a term is stipulated, a contract may have provisions that allow the executive to terminate the agreement early, without giving a reason or cause, by providing advance written notice to the board.
In the case of a walkout with no notice provided, some contracts may require the CEO to repay an amount proportional to the salary for that time. For instance, if a 30-day notice is stipulated in the agreement and the CEO fails to provide it, they will owe the chamber the equivalent of one month of their salary.
No severance will be paid to the CEO if they leave on their own accord.
Contract non-renewal by the board
A CEO contract with a term stipulated usually includes a provision that allows the board to end the agreement early or chose not to renew it without cause. In the case of early termination without cause, the agreement should provide severance details for the CEO.
If you have a contract, there should also be severance terms provided. While severance amounts vary, the amount is usually based on the years of service. Typical severance packages range from 90 days to twelve months of pay. This may be something that you can negotiate.
The chamber may pay for the CEO’s benefits (assuming they had them), such as health insurance premiums, during the severance period. Receiving severance is usually conditioned “on a release of all claims by the CEO.”
Termination for cause
There is also likely a provision for termination for cause, which should be defined precisely. The board should use an employment attorney for wording, particularly when working with subtle language that has a big impact on operation such as “termination due to criminal conviction.” This would require waiting until after a criminal proceeding ended before the CEO could be removed.
With today’s increase in social media and video presence, a new best practice includes extending cause definitions to include issues that “occur or come to light” during the CEO’s tenure that bring the executive (or the chamber vicariously) “into public contempt or ridicule.”
CEOs should be aware of cause definitions that are too vague, subjective, or nebulous. Ensuring they are clear and measurable will help avoid a future termination due to “bad will” or politics.
Generally, in these cases, no severance is paid. This can make them contentious. That’s why the terms are critical.
Some employment contracts also have terms of arbitration, where it is agreed upon by the parties to seek the help of an arbitrator, not a court.
Compensation, Benefits, Allowances, and Bonuses
Chamber CEOs will have salary compensation based on whether it is a full-time or part-time position. The contract should stipulate salary, exempt or non-exempt, as well as review process and salary increases/future adjustments. Note whether there is a yearly cost of living adjustment (or minimum annual increase) tied to a performance review or whether raises must be requested.
Benefits packages vary as well but could include health insurance, dental, vision, and/or contributions to a 401K or similar retirement plan. Some positions may offer stipends to offset costs for the employee to purchase their own instead of receiving benefits from the chamber. The contract should outline the level of coverage you receive as well as the out-of-pocket cost of benefits to the CEO. Some employment contracts leave out this language and refer candidates to the employee handbook for the applicable benefits packages.
Employment contracts typically spell out additional employee benefits the CEO will receive beyond that of the rest of the staff. This is becoming less common due to the required IRS disclosure of some of these benefits. Examples of these “extras” could include additional paid time off and/or the ability to roll over unused PTO and/or be paid out for unused accrued leave upon departure, and relocation assistance/allowance.
In addition to salary, CEOs may receive bonuses based on goal achievement such as retention rates and/or recruiting. These discretionary bonus opportunities, often have a predetermined amount (as in a $10,000 end-of-year bonus) or maximum percentage of base salary (as in 3% of salary after achieving the goal).
The employment agreement should lay out the process of initial goal determination including when the goals will be set and communicated (at the beginning of the fiscal year or another performance period at the annual meeting, for instance), and naming involved members of the board or additional stakeholders.
The entire board shouldn’t take part in the annual CEO performance evaluation. Ideally, the executive committee handles this function.
Bonus plans can be paid annually or quarterly or a combination of both.
An example of a bonus plan for a chamber exec is:
Quarterly:
• Commission of 20% of all New Membership income
• $100.00 bonus for every 10 new members
• $300.00 bonus for 20 new members
• $500.00 bonus for 30 new members
Yearly:
• 10% of the difference between the ending balance from the Annual report year-over-year, if the following objectives are met:
o Membership retention of 65%
o Event performance (key performance indicator/measurement spelled out)
o Overall Job performance (key performance indicator/measurement spelled out)
Expense Reimbursement and Relocation Assistance
Some CEOs receive mileage allowances, cell phone reimbursement, and/or home office subsidies. Larger chambers may offer relocation assistance.
It’s important to understand how mileage will be handled. Some chambers may have a chamber vehicle, but most chamber professionals use their own and are either compensated for it with a monthly allowance or receive reimbursement.
If the contract does not elaborate on how business expenses (for things such as travel to chamber meetings and spousal attendance) will be handled, inquire about it.
Performance Review Process
One of the most common employee complaints is a lack of a formalized review process. The contract should detail what that looks like and when it occurs. Again, key performance indicators should be enumerated and how they are calculated must be understood by the job candidate and the board.
Additional Resources:
Chamber CEO Employment Contracts from WACE
Executive CEO Corporate Example from the Society of Human Resources Management (SHRM)
Chamber CEO Evaluations from WACE
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