You just hired your first VP of Sales. The offer letter is signed, the salary is set, and everyone’s excited about what this hire means for your next growth phase.
Here’s what I see happen next with clients at this stage: the actual employment agreement gets treated as a formality. A quick template pulled from a previous hire, tweaked slightly, signed without much thought. The salary number gets all the attention. Everything else feels like paperwork.
That’s a mistake I want to help you avoid.
When you’re bringing on your first real executive, whether that’s a VP, a CFO, or a COO, the agreement you sign now shapes what happens years from now if things go well (an acquisition offer) or if things go sideways (a termination that turns messy). Companies at your stage, typically 10 to 75 employees and $1.5M to $3M in revenue, are exactly where these agreements start to matter most. You’re building a leadership team for the first time, and the terms you set today become the precedent for every executive hire after this one.
Let’s walk through the clauses that actually determine what happens later.
Severance Triggers: Define “Fired” Before You Need To
Most founders assume severance is simple: if we let someone go, we pay them something. In practice, the details determine whether severance protects your company or creates a fight.
The clause that matters most is how you define “cause.” If your agreement says an executive can only be terminated “for cause,” and cause isn’t clearly defined, you’ve handed yourself a problem. Vague cause definitions turn every termination decision into a legal debate about whether the reason qualifies.
Here’s an example of what this looks like in practice. Imagine your COO’s performance has been steadily declining. Not because of one dramatic failure, but a pattern of missed targets and disengagement. If your agreement only allows termination for cause and defines cause narrowly (theft, fraud, conviction of a crime), you may be stuck paying full severance for a performance-based exit that any reasonable business owner would want to make.
What I recommend instead: build in a “without cause” termination option with a defined severance formula. Something like three to six months of salary, scaled to tenure. This gives you the flexibility to make a leadership change when it’s the right business decision, not just when you can prove misconduct. It also gives your executive clarity upfront, which reduces disputes later.
Severance clauses should also address what happens to unvested equity, health benefits continuation, and whether severance is contingent on signing a release of claims. That release is your protection against a wrongful termination claim down the road. Don’t skip it.
Change-of-Control Provisions: Protect the Deal You Haven’t Made Yet
This is the clause founders skip most often, mainly because an acquisition feels far away when you’re negotiating an offer letter. But change-of-control provisions matter most when you least expect to need them, which is exactly why they belong in the agreement now.
A change-of-control clause addresses what happens to your executive’s compensation, equity, and role if your company gets acquired, merges, or undergoes a significant ownership change. Without one, you risk two problems.
First, a key executive might have no incentive to support a deal that’s good for the company but uncertain for their own job. Second, without clear terms, executives sometimes negotiate for outsized “golden parachute” packages in the heat of deal negotiations, when leverage has shifted entirely in their favor.
The standard structure I use with clients includes accelerated vesting of a portion of equity upon a change of control, and “double trigger” severance, meaning severance only activates if two events occur: (1) a change of control, AND (2) the executive is terminated without cause or their role is materially changed within a defined period after the acquisition (commonly 12 months). This structure protects both parties: it prevents windfalls while preserving the executive’s incentive to support and complete the transaction.
If you’re planning to raise capital, bring on investors, or eventually sell, this clause should be in every executive agreement you sign starting now. Waiting until a deal is on the table means negotiating from a much weaker position.
Non-Disparagement: Protect Your Reputation After the Relationship Ends
Non-disparagement clauses get less attention than non-competes, but for companies your size, they often matter more.
Here’s why. A non-compete restricts what your executive can do after leaving. A non-disparagement clause restricts what they can say. For a growing company relying on customer trust, investor confidence, and a strong reputation in your industry, what a departing executive says publicly can do real damage. This matters even more if that executive leaves on bad terms.
Take this scenario: a CFO departs after a disagreement about company direction. Without a non-disparagement clause, that CFO is free to tell your investors, your customers, or your industry peers exactly what they think went wrong, whether or not it’s accurate. With a mutual non-disparagement clause in place (mutual matters, because one-sided clauses are harder to enforce and can look punitive), both sides agree to avoid making negative statements about each other after separation.
I recommend pairing this with a clear communication plan for how departures get announced internally and externally. The agreement sets the legal boundary. The communication plan sets the practical tone.
The IP Clause Most Founders Miss in Executive Agreements
There’s one more piece worth flagging, because it connects directly to something I see missed constantly at this stage: intellectual property assignment.
Executive agreements need to explicitly state that any inventions, strategies, processes, or intellectual property your executive creates or contributes to during their employment belong to the company. This sounds obvious, but generic templates often bury this in vague language, or leave it out of executive-level agreements entirely because it feels more relevant to engineers than to a VP of Sales or a CFO.
But executives shape strategy, contribute to product direction, and sometimes co-develop processes or systems that become genuinely valuable IP. If your agreement doesn’t clearly assign that ownership to the company, you could face ambiguity about who owns it if that executive leaves and starts something competitive. This is exactly the kind of gap that surfaces during due diligence when you’re raising capital or preparing for a sale, and it’s far easier to fix now than to untangle later.
Where This Leaves You
The salary line in an executive offer gets negotiated hardest, but it’s rarely the clause that causes problems later. Severance triggers, change-of-control terms, non-disparagement language, and IP assignment are what determine whether your next executive transition, whether that’s a departure, an acquisition, or a dispute, goes smoothly or turns into a costly mess.
If you’re preparing to make your next executive hire, or looking back at agreements already in place and wondering what might be missing, I’d be glad to talk through what you’re seeing. What’s your current approach to executive agreements? I’m curious whether these clauses are already part of your process or something you’re just starting to think about. If you want contracts that hold, IP that’s protected, and legal bills that don’t surprise you every month, let’s talk. Garcia-Zamor Law Firm delivers fractional in-house counsel and/or hourly billed legal advice with a unique advantage: business law PLUS IP expertise, backed by 70+ years of combined experience. Passionately devoted to your success. Visit garcia-zamor.com or call (410) 531-9853.
