19 January 2024|
Sex / Gender
Executive remuneration – why is it relevant to employment disputes?
Senior executives often receive remuneration packages which include bonuses, long-term incentive plans (LTIPs), such as stock options and shares, and carried interest. Such forms of remuneration tend to be highly lucrative and are aimed at promoting high levels of performance and enhanced retention rates. Where LTIPs consist of shares and/or carried interest, they are likely to contain a vesting schedule which allocates percentages of (e.g.) shares by reference to years of employment.
At Farore Law, we have a wealth of experience in advising clients on their executive remuneration, whether as part of a negotiated settlement, or during litigation. Disputes over executive remuneration packages occur in a variety of settings, including where there has been a discriminatory dismissal which results in the loss or diminution in value of shares or carried interest. In the following section, we discuss specific examples of executive pay disputes and how we navigated these matters on behalf of our clients.
Examples of executive remuneration disputes
We are currently acting for the founders of a tech start-up which includes advising the Company in managing the co-founder’s exit. The matter has reached the High Court where the exited founder is challenging the forfeiture of his shares. The co-founder did not have two years of qualifying employment, which is why he could not lodge the claim with the Employment Tribunal. The case involves detailed analysis of the Shareholders’ Agreement and the Articles of Association to determine whether the departing co-founder is entitled to any shares in the Company. At Farore Law, we combine our knowledge of employment law with related areas such as company law to put forward the strongest claim or defence for our clients.
In another matter, we are acting for a senior executive who was allegedly made redundant following her equal pay complaint. Aside from her base salary and bonuses, she received carried interest, which is a typical form of remuneration in private equity. Employees are allocated a percentage of carried interest in a private equity, venture capital or hedge fund, and may receive a payout depending on the fund’s performance (often the fund must hit a “carry hurdle” before a payout is due, i.e., exceed an agreed upon rate of return after the fund returns the limited partners’ principal).
Our client had alleged that her Male Peers (unjustifiably) received higher salaries, bonuses and carried interest than she did; and a significant part of her losses flowed from the difference between her carry allocation and that of her Male Peers. After the employee departed, she lodged (amongst other claims) an equal pay complaint with the Employment Tribunal. As a result, her former employer reduced her carried interest to zero. We advised our client on the best claim to bring as a result of her former employer’s conduct, which necessitated a thorough understanding of the fund rules, jurisdictional arguments (as the funds are not based in the UK) and the provisions of the Equality Act 2010.
At Farore Law, we are well placed to assist with employment disputes which concern executive remuneration – we have a network of contacts who are to advise on the tax implications of settlement agreements and provide valuations of complex executive remuneration packages.
Farore Law is a leading boutique law firm that has a wealth of experience in advising senior executives on executive remuneration and restrictive covenants. We are well placed to provide appropriate advice regarding the enforceability of contractual terms, seeking a settlement agreement and commencing or defending litigation in the High Court or the Employment Tribunal.
Please contact us if you require legal advice.