CTO and CIO Employment Contract Terms to Negotiate For

By Robert A. Adelson

The demand for Chief Technology Officers (CTO) or Chief Information Officers (CIO) to lead corporate initiatives in new technologies like cloud computing, cybersecurity, AI, and IoT is strong.

If you are a seasoned tech executive, you may at some point find yourself being promoted or offered a job at another company to be CIO or CTO.

When you do, beware that executive employment agreements are not boilerplate, and you should review the terms carefully before signing it. At a minimum, you want the terms to be clear on what your reward would be when you succeed, and should you leave the company, terms such as non-competes would not limit your ability to get another job.

Let’s take a look at some important CTO/CIO contract terms and what you should negotiate for.

 

CTO/CIO Role, Responsibilities, and Authority

Before accepting a new C-level executive job offer, it is important to clearly understand what your role and responsibilities are because they are the yardsticks for measuring your performance, reward, and even continued employment and severance pay.  

Although CTOs and CIOs are both tech executives, a CTO typically builds or enhances new products or services for customers, while a CIO focuses on developing and deploying technologies to improve the company’s internal operations. Their responsibilities may include overseeing the company’s data, network, security, and maintenance; managing customer relations and delivery of product to market; setting the technical strategy; helping to form the corporate strategy; and so on. It is important for you to get clarity on the scope of your duties and responsibilities, as well as your authority in the company.

You should negotiate the areas and levels of support you will have, such as resources for expected responsibilities, performance targets, organizational authority, and reporting structures, staff hiring and firing, facilities, and budgets.

 

Reliance

Reliance refers to the representations made to you by the company that significantly impact or even determine your decision to accept the job offer. For example, you might have taken the job because the company was committed to undertaking a mission that appeals to you, such as developing a certain new product, service, or market.

Other examples may be the company’s financial position, the presence of key personnel, or government support – advantages that you believe would enable you to achieve success and move up in your career.

To properly address this issue of “reliance,” your CTO or CIO employment agreement must recite the key terms that you are relying on and then reference those terms in the termination and severance section. This way, should the company fail to fulfill those terms, you would be in position to quit for “good reason” and trigger severance or leverage those contract protections to negotiate with the company.

 

Signing Bonus, Performance Bonus, and Other Bonuses

If you were lured away by the new company from a secure position at your current company, you should get a signing bonus to make you whole for what you have given up in your current position, plus the added risk of the new position. 

Regarding performance-based bonuses, your CTO/CIO contract should not leave determination of your annual bonus to the company’s “discretion” but instead set in place arrangements, so you are working toward an achievable goal to be paid out if you and/or the company meet your targets. For more information, see my article “Executive Sign on Bonus, Retention Bonus and Other Bonuses – Terms and Negotiations.”

 

CIO and CTO Equity Compensation

The most potentially valuable part of your C-level executive compensation package is often the equity component. Its size and potential value can arise out of the amount, terms, and tax structure of your equity grant. Structuring the type of equity, its vesting, and terms can also vary how it will be taxed and thus your potential after-tax income. Your equity can be a mixture of stock, stock options, restricted stock, RSUs, and performance shares. Or with LLCs, it can be a mix of capital and profits interests.

For companies that can’t or won’t issue executive equity, there are various structures for “phantom stock,” plus there are still more forms we can structure for executive equity. Each of these can involve terms on vesting, acceleration, valuation, exercise, clawbacks, drag along, tag along, parachute provisions, liquidity, anti-dilution, etc. 

For more information, see my article “Executive Stock Options, Restricted Shares and Restricted Stock Units – What’s Best for You.”  

 

Severance Terms

You should also have severance terms to protect your rights in the event of separation. For example, if, in the end, the Company fails to give you the authority, responsibility, or support stated in your agreement, you can give notice that corrections must be made or you will leave, and your severance triggered. Or, if the company changes course leading to a reduction in your bonus or value of your equity, then it has failed to meet the reliance terms.

You can choose to leave and claim severance pay.

 

Non-competes, Non-disclosure, and Assignment of Inventions

CTO and CIO employment letters often include non-compete terms that prevent employees from getting poached by competitors. They may also contain non-disclosure terms that protect the company’s intellectual property and trade secrets. These terms should not be so broad and restrictive that you can no longer work at your established level in your field or industry of the best expertise.

If you are a patent-holder or have ideas on new inventions, you should review the “Assignment of Inventions” clauses to assure that the new company gets rights only to inventions and trade secrets you create on the new job, but not more. What you did before and what you do on your own time should continue to be yours alone.

Whether you are getting a new job offer or renewing a contract, an experienced executive employment agreement lawyer can help you negotiate a CTO or CIO employment agreement that will protect your interests and set the stage for a successful relationship with your employer.

© 2023 Robert A. Adelson