"Good Reason" in Sheryl Sandberg's Employment Agreement with Facebook

I've taken a very brief spin of Facebook COO Sheryl Sandberg's employment agreement, now on file with the SEC as part of Facebook's S-1 registration statement.

5547636055_8fceabd7b4Others are reporting and analyzing the financial stake that Sandberg and other employees have in the company. I was looking for more pedestrian, mechanical provisions that would "stand out" by not being where expected, or variations on boilerplate that might be innovative.

One tension growing companies often have to resolve, in employment agreements with key executives that merit and/or demand written contracts, is how to permit the company the flexibility it needs to change roles and reporting structures, while giving the executive assurances as to her authority that she will request.

Sandberg's contract is not especially innovative on the flexibility/authority tension, but it does express the considerations in equipoise, in an elegant way:

"You understand and agree that the Company is a rapidly growing and changing organization and the precise nature of the work you do for the Company as COO may be adjusted from time to time but, in any event, your duties and responsibilities always will be at least commensurate with those duties and responsibilities normally associated with and appropriate for someone in the position of COO."

Notice also that the word "authority" is not used. Instead, the scope of Sandberg's job is expressed in terms of "duties and responsibilities." There's an implicit authority in there somewhere, no question; but the Company-leaning emphasis (what Sandberg owes Facebook, as its COO) is smart.

This assurance to Sandberg has teeth by virtue of a "good reason" provision in her contract. As you probably know, "good reason" is typically a defined term in exec employment agreements, setting out those circumstances under which the employee can go ahead and quit, without sacrificing her entitlement to severance, acceleration, or other benefits that should follow in the event that the company terminates her employment without cause. (Here's a post from last year that speaks to "good reason" definitions in general.)

Here are the "good reason" factors in Sandberg's agreement (provisos and conditions omitted for the sake of conceptual clarity):

"(A) a material diminution in your base salary; (B) a material change in geographic location at which you must perform services (a change in location of your office will be considered material only if it increases your current one-way commute by more than fifty (50) miles); (C) any material failure of the successors to the Company after a Change of Control to perform or cause the Company to perform the obligations of the Company under this Agreement; (D) any action or inaction of the Company that constitutes a material breach of the terms of this Agreement; or (E) any other material adverse change in your duties, authorities or responsibilities as specified in Section l(a), above . . ."

Notice that in the verbiage above, the word "authority" is finally countenanced.

Minor point, but the Sandberg contract does not actually use the term "good reason." Instead, the list above is part of the defined term, "Involuntary Termination."

More interesting point: Sandberg's contract appears to be one of only two of the five exec employment agreements/letters filed that has a good reason clause. The other is the company's employment agreement with Theodore Ullyot, its general counsel. The other three, including Mark Zuckerberg, have shorter form "employment letters" that are far more streamlined.

The exec agreements were filed Wednesday as an amendment to Facebook's S-1 filing of last week. Other amendments will follow as Facebook receives and responds to comments from SEC staff on disclosure and accounting issues. This initial amendment, however, was solely for the purpose of filing exhibits, including the Sandberg and other exec agreements.

Photo: Sarah Page/Flickr.


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