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MODEL
CHIEF EXECUTIVE OFFICER
EMPLOYMENT CONTRACT (Long Form)
This
agreement, made and effective as of the ____ day of ________, 20__,
between (name of Hospital), a corporation, and name of CEO.
WHEREAS,
the Hospital desires to secure the services of the CEO and the CEO desires
to accept such employment.
NOW
THEREFORE, in consideration of the material advantages accruing to the
two parties and the mutual covenants contained herein, and intending
to be legally and ethically bound hereby, the Hospital and the CEO agree
with each other as follows:
1.
The CEO will render full-time professional services to the Hospital
in the capacity of Chief Executive Officer of the Hospital corporation.
He will at all times, faithfully, industriously and to the best of his
ability, perform all duties that may be required of him by virtue of
his position as Chief Executive Officer and all duties set forth in
Hospital bylaws and in policy statements of the Board. It is understood
that these duties shall be substantially the same as those of a chief
executive officer of a business corporation. The CEO is hereby vested
with authority to act on behalf of the Board in keeping with policies
adopted by the Board, as amended from time to time. In addition, he
shall perform in the same manner any special duties assigned or delegated
to him by the Board.
2.
In consideration for these services as Chief Executive Officer, the
Hospital agrees to pay the CEO a salary of $________ per annum or such
higher figure as shall be agreed upon at an annual review of his compensation
and performance by the Board. This annual review shall occur three months
prior to the end of each year of the contract for the express purpose
of considering increments. The amount of $________ shall be payable
in equal monthly installments throughout the contract year. The CEO
may elect, by proper notice given to the Hospital prior to the commencement
of any calendar year, to defer such portion of his salary to the extent
permitted by the law for such year to such date as he may designate
in the notice of election, such deferred amounts to be credited with
periodic interest in accordance with policies established by the Hospital.
3.
(a) The CEO shall be entitled to ____ weeks on compensated vacation
time in each of the contract years, to be taken at times mutually agreed
upon between him and the Chairman of the Board.
(b)
In the event of a single period of prolonged inability to work due to
the result of a sickness or an injury, the CEO will be compensated at
his full rate pay for at least _____ months from the date of the sickness
or injury.
(c)
In addition, the CEO will be permitted to be absent from the Hospital
during working days to attend professional meetings and to attend to
such outside professional duties in the healthcare field as have been
mutually agreed upon between him and the Chairman of the Board. Attendance
at such approved meetings and accomplishment of approved professional
duties shall be fully compensated service time and shall not be considered
vacation time. The Hospital shall reimburse the CEO for all expenses
incurred by the CEO incident to attendance at approved professional
meetings and such entertainment expenses incurred by the CEO in furtherance
of the Hospital's interests, provided, however, that such reimbursement
is approved by the Chairman of the Board.
(d)
In addition, the CEO shall be entitled to all other fringe benefits
to which all other employees of the Hospital are entitled.
4.
The Hospital agrees to pay dues to professional associations and societies
and to such service organizations and clubs of which the CEO is a member,
approved by the Chairman of the Board as being in the best interests
of the Hospital.
5.
The Hospital also agrees to:
(a)
insure the CEO under its general liability insurance policy for all
acts done by him in good faith as Chief Executive Officer throughout
the term of this contract;
(b)
provide, throughout the term of this contract, a group life insurance
policy for the CEO in an amount equivalent to $______, payable to the
beneficiary of his choice;
(c)
provide comprehensive health and major medical health insurance for
the CEO and his family;
(d)
purchase travel accident insurance covering the CEO in the sum of $_______;
(e)
furnish, for the use of the CEO, an automobile, leased or purchased
at the beginning of alternate fiscal years, and reimburse him for expenses
of its operation; and
(f)
contribute on behalf of the CEO to a retirement plan qualified under
the Internal Revenue Code, at the rate of $______ per month.
6.
The Board may at its discretion terminate the CEO's duties as Chief
Executive Officer. Such action shall require a majority of vote of the
entire Board and become effective upon written notice to the CEO or
at such later time as may be specified in said notice. After such termination,
all rights, duties and obligations of both parties shall cease except
that the Hospital shall continue to pay the CEO his then monthly salary
for the month in which his duties were terminated and for 24 consecutive
months thereafter as an agreed upon severance payment. During this period,
the CEO shall not be required to perform any duties for the Hospital
or come to the Hospital. Neither shall the fact that the CEO seeks,
accepts and undertakes other employment during this period affect such
payments. Also, for the period during which such payments are being
made, the Hospital agrees to keep the CEO's group life, health and major
medical insurance coverage paid up and in effect, and the CEO shall
be entitled to outplacement services offered by the Hospital. The severance
arrangements described in this paragraph will not be payable in the
event that the CEO's employment is terminated due to the fact that the
CEO has been charged with any felony criminal offense related to substance
abuse or to the operation of the Hospital.
7.
Should the Board in its discretion change the CEO's duties or authority
so it can reasonably be found that the CEO is no longer performing as
the Chief Executive Officer of the Hospital and/or its parent corporation,
the CEO shall have the right, within 90 days of such event, in his complete
discretion, to terminate this contract by written notice delivered to
the Chairman of the Board. Upon such termination, the CEO shall be entitled
to the severance payment described in Paragraph 6, in accordance with
the same terms of that paragraph.
8.
If the Hospital is merged, sold or closed, the CEO may terminate his
employment at his discretion or be retained as President of the Hospital
or any successor corporation to or holding company of the Hospital.
If the CEO elects to terminate his employment at such time, he shall
be entitled to the same severance arrangement as would be applicable
under Paragraph 6 if the Hospital had terminated his employment at such
time.
Any
election to terminate employment under this Paragraph must be made prior
to the Hospital's merger, sale or closure, as applicable.
If
the CEO continues to be employed by the Hospital or its successor organization,
all of the terms and conditions of this Agreement shall remain in effect.
The Hospital agrees that neither it nor its present or any future holding
company shall enter into any agreement that would negate or contradict
the provisions of this Agreement.
9.
Should the CEO at his discretion elect to terminate this contract for
any other reason than as stated in Paragraph 7, he shall give the Board
90 days' written notice of his decision to terminate. At the end of
the 90 days, all rights, duties and obligations of both parties to the
contract shall cease and the CEO will not be entitled to severance benefits.
10.
If an event described in Paragraph 6, 7, or 8 occurs and the CEO accepts
any of the severance benefits or payments described therein, to the
extent not prohibited by law, the CEO shall be deemed to voluntary release
and forever discharge the Hospital and its officers, directors, employees,
agents, and related corporations and their successors and assigns, both
individually and collectively and in their official capacities (hereinafter
referred to collectively as "Releasees"), from any and all
liability arising out of his employment and/or the cessation of said
employment. Nothing contained in this paragraph shall prevent the CEO
from bringing an action to enforce the terms of this Agreement.
11.
The CEO shall maintain confidentiality with respect to information that
he receives in the course of his employment and not disclose any such
information. The CEO shall not, either during the term of employment
of thereafter, use or permit the use of any information of or relating
to the Hospital in connection with any activity or business and shall
not divulge such information to any person, firm, or corporation whatsoever,
except as may be necessary in the performance of his duties hereunder
or as may be required by law or legal process.
12.
During the term of his employment and during the 24-month period following
termination of his employment, the CEO shall not directly own, manage,
operate, join, control, or participate in or be connected with, as an
officer, employee, partner, stockholder or otherwise, any other hospital,
medical clinic, integrated delivery system, health maintenance organization,
or related business, partnership, firm, or corporation (all of which
hereinafter are referred to as "entity") that is at the time
engaged principally or significantly in a business that is, directly
or indirectly, at the time in competition with the business of the Hospital
within the service area of the Hospital. The service area is defined
as [describe by counties, zip codes, a mileage radius, etc.]. Nothing
herein shall prohibit the CEO from acquiring or holding any issue of
stock or securities of any entity that has any securities listed on
a national securities exchange or quoted in a daily listing of over-the-counter
market securities, provided that any one time the CEO and members of
the CEO's immediate family do not own more than one percent of any voting
securities of any such entity. This covenant shall be construed as an
agreement independent of any other provision of this Agreement, and
the existence of any claim or cause of action, whether predicted on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Hospital of this covenant. In the event of actual or threatened
breach by the CEO of this provision, the Hospital shall be entitled
to an injunction restraining the CEO from violation or further violation
of the terms thereof.
13.
The CEO shall not directly or indirectly through his own efforts, or
otherwise, during the term of this Agreement, and for a period of 24
months thereafter, employ, solicit to employ, or otherwise contract
with, or in any way retain the services of any employee or former employee
of the Hospital, if such individual has provided professional or support
services to the Hospital at any time during this Agreement without the
express written consent of the Hospital. The CEO will not interfere
with the relationship of the Hospital and any of its employees and the
CEO will not attempt to divert from the Hospital any business in which
the Hospital has been actively engaged during his employment.
14.
Terms of a new contract shall be completed, or the decision made not
to negotiate a new contract made, not later than the end of the tenth
month. This contract and all its terms and conditions shall continue
in effect until terminated.
15.
This contract constitutes the entire agreement between the parties and
contains all the agreements between them with respect to the subject
matter hereof. It also supersedes any and all other agreements or contracts,
either oral or written, between the parties with respect to the subject
matter hereof.
16.
Except as otherwise specifically provided, the terms and conditions
of this contract may be amended at any time by mutual agreement of the
parties, provided that before any amendment shall be valid or effective
it shall have been reduced to writing and signed by the Chairman of
the Board and the CEO.
17.
The invalidity or unenforceability of any particular provision of this
contract shall not affect its other provisions, and this contract shall
be construed in all respects as if such invalid or unenforceable provisions
had been omitted.
18.
This agreement shall be binding upon the Hospital, its successors and
assigns, including, without limitation, any corporation into which the
Hospital may be merged or by which it may be acquired, and shall inure
to the benefit of the CEO, his administrators, executors, legatees,
heirs and assigns.
19.
This agreement shall be construed and enforced under and in accordance
with the laws of the State of ______________.
This
contract signed this _______ day of _______________, 199___.
(NAME
OF HOSPITAL)
WITNESS:__________________BY:___________________
(Chairman of the Board)
WITNESS:__________________BY:___________________
(CEO)
ANNOTATIONS
TO CHIEF EXECUTIVE OFFICER CONTRACT (Long Form)
This
contract is the "long form" CEO contract. It is somewhat more
formal than the letter agreement and specifically lays out some of the
minimal benefits that a CEO should receive. Its formality and extensiveness
make it more applicable as part of the negotiations for a new relationship
than as a contract proposed during an existing one. It should be examined
so that the items covered are raised in the negotiations rather than
for the exact benefit and salary structure stated. Some benefits will
be agreed upon and some not. That is the purpose of a contract negotiation.
PARAGRAPH
1
This
paragraph sets forth the duties of the chief executive officer in very
general terms. The specific duties of the CEO are not spelled out in
the contract itself for two reasons. First, since the CEO should be
involved in virtually every area of hospital operations, he must not
be hamstrung by a limited laundry list of duties that narrowly circumscribe
the scope of his responsibility. Such lists relegate the CEO to the
status of a hired hand. In addition, since the duties of the CEO constantly
change as the hospital changes, it is unwise to lock him and the hospital
into a set routine from the start. The contract likens the CEO's role
to that of a CEO in a business corporation to underscore the broad responsibility
entrusted with him.
PARAGRAPH
2
This
paragraph contains the financial terms of the contract, specifically,
the CEO's salary. An annual figure is inserted in the first blank, while
his monthly pay rate should be included in the second blank. The latter,
or course, can be a weekly or bimonthly rate, depending on how the hospital
or executive payroll is so structured. After each annual salary review,
the CEO's salary will presumably increase. New salary levels should
be contained in a letter to the CEO from the board chairman, which will
become incorporated into the initial contract. By the contract language
the CEO is also permitted the discretion to direct that a portion of
his salary go into tax shelters as deferred income to the extent permitted
by the law.
PARAGRAPH
3
This
paragraph deals in general with compensation for time spent by the CEO
away from the hospital, including vacation, sick leave and out-of-hospital
business. An alternative to laying these benefits out in the contract
is to include them in a separate letter agreement.
Subparagraph
3(a) deals with vacation time for the CEO. Vacation time is compensated
at the CEO's full rate, and can be accumulated over the life of the
contract.
Subparagraph
3(b) deals with sick leave in a similar fashion except that, unlike
vacation time, it is not accumulated but rather is limited to a specified
number of months. Thus the paragraph deals with disability payments
in the event of a major sickness or injury to the CEO. It can take the
place of or supplement any disability insurance policy that the CEO
may have in effect.
Subparagraph
3(c) permits the CEO to attend professional or hospital association
meetings. The meetings to be attended should be agreed to in advance,
or expense accounts approved after the fact by the chairman of the board.
According to this clause, the CEO is entitled to reimbursement for all
his expenses and for his full salary while in attendance at these meetings.
Also, the travel expenses of the CEO's spouse and any necessary business
entertainment expenses are also paid for. It should be stressed that
the chairman of the board should approve all expense accounts of the
CEO, for the CEO's own protection.
PARAGRAPH
4
The
CEO's dues for professional associations, service organizations or clubs
that he belongs to are paid for by the hospital, so long as his membership
in them is reasonably related to the interests of the hospital. It should
not be necessary that these be approved in advance, but the chairman
of the board should approve what organizations the CEO joins.
PARAGRAPH
5
Subparagraph
5(a) requires the hospital to include for coverage the CEO under its
general liability insurance policy for any acts done by him in good
faith during the course of his duties. This is absolutely essential
since CEO's are very often named in lawsuits by patients alleging negligence
or by physicians alleging that a denial or termination of medical staff
appointment was improper. The hospital must protect the CEO if he is
to carry out his duties innovatively, aggresively and effectively.
The
fringe benefit described in subparagraph 5(b) provides the CEO with
a group life insurance policy, paid for by the hospital. Of course,
the CEO may name the beneficiaries of this policy. Subparagraphs 5(c)
and (d), respectively, provide for comprehensive health insurance and
travel accident insurance paid for by the hospital. The health insurance
package may be with Blue Cross/Blue Shield, a commercial carrier, or
the Hospital's own self-insurance mechanism.
Subparagraph
5(e) provides for an automobile to be used by the CEO, the expenses
of which are to be borne by the hospital. Finally, subparagraph 5(f)
permit payments into a retirement plan that are over and above the CEO's
base salary.
PARAGRAPH
6
This
clause is commonly referred to as the termination provision. It is by
far the most important part of the contract. In the event that a majority
of the board decides the services of the CEO are no longer required,
for whatever reason, the contract is terminated. However, the CEO will
still be entitled to a stated amount of salary even though he is no
longer working for the hospital. Also, the CEO's group life and health
insurance benefits continue.
Outplacement
services are also made available. The exact number of months of severance
pay to which the CEO is entitled is of course the subject of negotiation.
The figure determined upon should accurately reflect the risks and challenges
of the position.
However,
this provision relieves the Hospital from its obligation to pay the
severance arrangements in the event that the CEO's employment is terminated
due to the CEO being charges with a criminal offense.
The
purpose of this clause is to protect the CEO from threats of termination
aimed at making him act in his position with unnecessary caution. It
is in the interest of the board, the hospital and the patients. The
CEO must be able to exercise his authority to the fullest extent possible.
He must also be able to make hard decisions without fear that his job
may be in jeopardy simply because someone on the board or the medical
staff did not like the choices he made.
PARAGRAPH
7
This
paragraph is similar to Paragraph 6, except that it comes into play
in the event that the board substantially changes the duties of the
CEO, either by appointing another officer with similar duties or restricting
the authority of the existing CEO. This would be one way to avoid the
applicability of the severance provisions of Paragraph 6. As in the
case of paragraph 6, the CEO in this case will be entitled to full salary
for two years after termination plus group life and health insurance
benefits.
PARAGRAPH
8
This
paragraph provides for severance payments in the event of merger or
closure of the hospital.
PARAGRAPH
9
This
clause allows the CEO to voluntarily terminate the employment relationship;
but, if he does, no severance payment is made.
PARAGARAPH
10
This
paragraph protects the hospital from needless future litigation by the
CEO if the CEO accepts the severance benefits. This allows the hospital
to conduct its business relationship with the CEO without unnecessary
caution. It is in the interest of the board, the hospital and the patients.
This waiver will be enforced to the maximum extent allowable by law.
PARAGRAPH
11
This
provision protects the hospital from disclosure of confidential information
by the CEO during and after his term of employment with the hospital.
An employment contract with a key executive should contain a provision
that prohibits the employee from disclosing to outsiders confidential
information acquired by the employee during his term of employment without
the express written permission of the employer. This provision should
describe the applicable information so as to put the employee on notice
as to what constitutes confidential information.
PARAGRAPH
12
An
employment contract with an executive employee typically contains a
covenant by the employee not to compete with the employer during the
term of the contract and for a specified period following termination
of employment. The covenant is essential to the employer in order to
prevent the employee from dealing with the employer's customers or otherwise
engaging in competitive activities with the employer immediately following
his termination of employment so as to cause material adverse financial
consequences to the business of the employer.
Restrictive
employment covenants have generally been held to be valid where the
restraint imposed on the employee is no greater than necessary to protect
the legitimate business interests of the employer and where neither
the hardship to the employee nor the likely injury to the public outweighs
the employer's need for protection. Thus, a covenant not to compete
is usually upheld if it is clearly and reasonably limited as to time
and area and does not extend beyond the duration and geographical scope
necessary for the protection of the employer. However, it should be
noted that such restrictive covenants are unenforceable in some states.
PARAGRAPH
13
This
provision prevents the CEO, whose employment at the hospital has been
terminated, for whatever reason, from recruiting other key executives
to leave the hospital and join him in independent ventures excluding
the hospital's involvement.
PARAGRAPH
14
This
paragraph makes it simple for the hospital and the CEO to continue the
agreement beyond its initial term by signing a simple letter agreement
as an extension. The letter need only state that the initial contract
has been extended for another specified period and set out the CEO's
new salary. All of the initial provisions and benefits continue in force
during the extension.
PARAGRAPH
15
This
is a standard clause that appears in most contracts. It states that
this particular contract embodies total agreement of the parties and
supersedes any previous contract, in response to the so-called "parole
evidence rule" of contract law. It eliminates any questions there
may be as to the subject matter contained in the contract.
PARAGRAPH
16
This
provision requires that any amendments to the contract have to be stated
in writing. This prevents either side from claiming that an "oral
understanding" superseded some portion of this contract. It is
technically referred to as a "No Oral Modification" or "NOM"
clause.
PARAGRAPH
17
This
is known technically as a "savings clause." In the event that
any portion of the contract is declared invalid or unenforceable by
a court, the rest of the contract can therefore not be terminated on
a "technicality."
PARAGRAPH
18
This
paragraph keeps the contract in force even though the hospital may change
its corporate structure or be sold to another owner. It also provides
that any benefits provided under the contract, such as life or accident
insurance, that survive the CEO upon his death, insure to the benefit
of his estate or heirs.
PARAGRAPH
19
This
clause stipulates what law applies to the contract. This is especially
useful in hospitals near state lines. The law governing the contract
should always be that of the state in which the hospital is located.
The
execution of the contract should be authorized by the board. It should
be signed by the chairman of the board and the CEO and should be witnessed
by two individuals who are not on the board and who are not members
of the CEO's family. It should be filed along with other essential corporate
documents. A copy should be given to the CEO. Needless to say, the terms
of the contract, especially those relating to salary levels, fringe
benefits and termination, should be treated as confidential.
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