CEO agreements – which terms should the board and the CEO regulate?
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Short answer: A CEO agreement should be significantly more detailed than a simple standard employment contract. The board and the CEO need to clearly regulate the assignment, remuneration, pension, bonus, termination, severance pay, confidentiality, competition issues, and the relationship to the board's instructions.
Why do CEO agreements differ from ordinary employment contracts?
A CEO has a specific position under company law and is under the direction of the board. Individuals in a managerial or comparable position may also be exempt from parts of labor law protection legislation. The assessment depends on the actual position, not just the title.
What should the agreement regulate?
- position, reporting, and place of work
- relationship to the articles of association and CEO instructions
- fixed salary and salary review
- variable remuneration, bonus, and performance criteria
- pension and insurance
- benefits and expense reimbursement
- vacation and other leave
- notice period and potential garden leave
- severance pay
- confidentiality and trade secrets
- intellectual property rights
- non-compete, non-solicitation, and non-dealing clauses where justified
The board's right to dismiss the CEO
The board can decide that the CEO must leave the CEO assignment itself. However, this does not mean that all financial consequences automatically disappear. The CEO agreement should therefore describe what happens to employment, salary, garden leave, and other compensation if the assignment is terminated.
Bonus and variable remuneration
Vague bonus clauses are a common source of conflict. Define the measurement period, goals, who determines the outcome, what happens if the CEO leaves in the middle of the period, and whether extraordinary events may affect the calculation.
Severance pay and garden leave
If the parties wish to use severance pay or garden leave, the agreement should specify the duration, set-off against new income, benefits during the period, and which loyalty or confidentiality requirements continue to apply.
CEO instructions and authorization
The CEO agreement should not attempt to replace the board's governing documents. A separate CEO instruction can clarify the division of labor between the board and the CEO, reporting, major decisions, and authorization limits.
Common mistakes
- using a standard employment contract without adaptation
- assuming that the Employment Protection Act (LAS) always applies or never applies without analysis
- bonus terms lacking a clear measurement method
- severance pay not being coordinated with the notice period
- non-compete clauses being made broader than necessary
See Mallbutiken's CEO agreement package in Swedish and English.
FAQ
Is the CEO covered by the Employment Protection Act (LAS)?
It cannot be answered solely based on the title. Employees in a managerial or comparable position are exempt from LAS, but the assessment is made based on the actual role and position.
Are both a CEO agreement and a CEO instruction needed?
They fulfill different functions. The agreement regulates the relationship between the company and the CEO, while the instruction is a board-governed corporate document regarding the CEO's duties and reporting.
Can the agreement be written in English?
Yes, but if Swedish law is to apply, the terminology must be consistent with Swedish company and labor law conditions.
This article provides general information and does not replace legal advice.
