e-Working For a Living

Because I have often written about how an e-commerce firm remains a business like any other; I chose to follow the same logic by illustrating how standard elements of a typical employment agreement have been modified to fit today's e-commerce needs. In this way, I hope to show ways in which one should think about modifying e-commerce employment agreements, manuals or policies for one's situation, whether as employer or employee. I will follow the 'typical' structure of an employment agreement, with comments on how and why it perhaps should change for an e-commerce firm.

First Things First

Let's begin with the first lines of the first page ' the parties' names. While the introduction may be a detail that many executives overlook in their haste to get to the compensation section, the names of the employer ' and whoever else signs the agreement on the last page ' carry a heavy legal weight. Whatever the balance sheet and creditworthiness of the principals behind an e-commerce business, all that matters to the employee trying to collect on a contract is the financial strength of the actual employer. Since it's common (and recommended by corporate counsel) to use a newly formed entity, typically an LLC, for a new and risky venture, the employee who does not get a parent or related-party guarantee may find that there's 'no there there' when it's time to collect.

This is particularly important when evaluating equity compensation, a common practice found in the agreements I sampled. If the employer isn't publicly traded, then stock or options must be valued much more carefully, as they cannot easily be converted into cash (at least not until the employee has grown the company into a publicly traded gold mine). For example, Classmates.com's CEO and chairman has a nominal $1 salary ' backed by many equity-driven incentives, in a contract that refers to a contemporaneous initial public offering, or 'IPO.' But having options is no guarantee of wealth, or even of payment ' the many stories returned from a simple Web search on 'worthless options' reveals that tech executives who gambled on equity long after the dot.com balloon burst still suffered the same fate as the irrationally exuberant in the dot.com boom of the late 1990s.

The name of the agreement is also an important indicator, below the CEO level. Many tech firms prefer to employ independent contractors, rather than full-time employees, to control payroll and benefit costs at the most basic level, and to provide flexibility for the inevitable restructurings that will occur in a dynamic market that expands and contracts in very short cycles. Recently, however, state and local wage and hour regulators have aggressively tried to recapture payroll-tax revenue lost by incorrect classification of workers as independent contractors rather than employees. They have vigorously enforced long-standing laws against firms that have abused this technique, aided by new state laws passed after the fallout from the dot-com bust. Similarly, at the federal level, the IRS has targeted FedEx's use of the same technique (albeit not in an e-commerce context).

These two basic facts ' the identity (and solvency) of the employer, and the tax treatment of the employee ' will greatly affect the e-commerce employment relationship, but are rarely a detail scrutinized in a typical job-offer sheet. With enforcement of wage and hour laws now a priority, e-commerce employers must also focus on whether their employees, who frequently work long hours, in fact meet the requirements for an 'exempt' position. (IRS guidelines can be found at www.irs.gov/businesses/small/article/0,,id=115041,00.html and at www.irs.gov/businesses/small/article/0,,id=99921,00.html.) If not, then overtime pay may be owed, even if everyone in the firm is working cooperatively 24/7 with an eye toward an IPO and an options payday (a subject discussed more below).

The Whats and the Wherefores

Next, an employment agreement usually lists the employee's title and duties. While the employer will want to preserve its flexibility to reassign the employee to duties and job location as the business rides the waves of a volatile economy, the employee should try to lock in aspects of the job that are most important to him or her. For example, one executive's agreements with several e-commerce firms have specifically allowed 'the purchase of interests in professional sports teams,' notwithstanding his other duties. A 2006 employment agreement between Hostopia.com and its CEO and COO specifically provided that although the company's offices were located in Canada, the employee would instead be 'headquartered' in Florida, but required to make 'frequent visits' to Canada. The employment agreements of MyPoints.com Inc., a survivor of a combination of firms, named 'Co-Presidents,' showing how evolution in e-commerce is also triggering changes in corporate governance. A contract with United Online specifically granted permission to telecommute. In one case, as an extreme example of an e-executive's power to protect his right to live where he chooses through the flexibility that e-working permits, a 2004 employment agreement of E-Trade Financial Corp. included in the definition of 'Change in Control Period (for) Good Reason,' the occurrence of which would accelerate equity and other contingent compensation, 'the relocation of Executive's principal workplace to a location greater than fifty (50) miles from the prior workplace.'

Indeed, in an industry where physical location of wired executive employees is nearly an irrelevancy, it is not surprising that several firms routinely reimburse substantial expenditures for home Internet access and security systems that would allow a key employee to work wherever he or she prefers to live. Other common distance-working perks include access to use of a company plane (often for the executive and spouse), an apartment at work locations and (less frequently) immigration assistance (a particularly important perk as the engineers who make e-commerce sites run increasingly come from abroad). A 2006 article, available at www.onrec.com/newsstories/13873.asp, lists many of the most common perks, and a similar 2007 survey may be found at www4.cio.com/article/print/156151. Other perks allow 'employees to stay connected to work outside the office' ' and 'stay plugged in to the office long after they've left for the day' ' including cell phones, laptops and Blackberrys, even for middle management, so that 'executives should expect to spend even more of their time on call.'

However, employers that allow employees to work from home a substantial amount of time must also consider whether they must comply with local licensing and tax reporting for doing business where the employee lives. While taxes on such benefits typically would be trivial, the cost of having to qualify the entire company to do business in the executive's home state (if the business is not already registered there) could be substantial.

If (as is common) options are a critical component of compensation, then appointment to the employer's board can be critical to affecting broad strategic decisions that will determine their performance (as well as another generous source of compensation, through directors' fees). While ultimately the shareholders must elect the directors, as a practical matter, in the public corporation an agreement to nominate the employee on the 'company recommended slate' is usually a ticket to the boardroom.

On the other hand, employers also must be sure to specify their demands. A 2004 contract of Amazon Global Resources Inc. specifically required a senior vice president, who reported directly to CEO and President Jeff Bezos, to work in Amazon.com's 'customer service center,' to 'keep (its) senior employees in direct contact with (its) customers.' On paper, at least, that duty was not trivial ' the employee had to perform that duty almost immediately, 'for three days during (his) first six months of employment and on a regular basis thereafter.'

Although serving on other corporate boards has long been a valuable way for senior executives to obtain experience and network at the highest corporate levels (and diversify their options portfolio), E-Trade Financial once specifically prohibited such outside business-related activity without prior written approval, and even with approval, limited service on other boards ' including nonprofits ' to two directorships. (In more recent agreements, however, it removed that cap, as long as the outside service did not 'adversely affect the performance of Executive's duties,' and required that the executive agree to resign immediately from outside positions if requested by E-Trade Financial's board.)

The term of an employment agreement also generally appears near the beginning. Executives often demand protection of a fixed term, so that they know they'll be compensated for their commitment if their plans do not succeed, or they have a difference of opinion with the board. But that choice may limit their ability to leave the company freely to pursue another opportunity if the current job isn't successful. Yet, from the opposite perspective, many of the e-commerce contracts were 'at will' ' either the company or the employee could terminate at any time. From the sample, this was the case for agreements with Amazon Global Resources (an affiliate of Amazon.com), MyPoints.com, Inc., and eBay.

In both models, the employee's ability to retain portions of compensation is frequently linked to long-term employment. Sometimes this occurs through commonly used options subject to vesting, requiring continued employment. Another technique grants cash bonuses payable only if the employee remains employed at a specified time in the future (from three to 10 years), as with eBay and Amazon agreements. Of course, being an at-will employee does not leave the employee penniless on termination ' the language defining 'cause' has simply migrated to the options section, in specifying the executive's rights to retain and exercise options following different types of termination. Also, as all firms (tech or not) find it convenient to operate through many subsidiary and affiliate relationships, two e-commerce firms, Hostopia.com and e-Trade, specifically deem a resignation from the parent company as a simultaneous resignation from all positions with all affiliates.

Creativity Can Equal Great Perks, Too

In an industry that rewards innovation, e-commerce executives have demonstrated creativity in restructuring their perks, as well as their Web sites. For example, as seen in the discussion of employee duties above, the need for remote work continues to be critical to e-commerce, and drives employee demand for perks that facilitate such work. With the stress of having to be available to everyone, all the time, everywhere, it's not surprising how many agreements specifically mandate certain health benefits, such as physicals and wellness programs, to keep executives alive and healthy; a dead e-commerce executive can't be replaced as easily as a failed router or hyperlink. Outside e-commerce, many firms provide perks unique to their business, presumably to demonstrate that senior management has confidence in its own products ' a home-cooling system from Lennox, clothing from Claiborne, and a waiver of investment fees and receipt of other advisory services from Ameriprise and other financial-services providers. Given that executive duties often involve substantial social and professional demands outside the workplace, these perks frequently extend to spouses.

Of course, one might reasonably question why (as in bricks-and-mortar firms as well) e-commerce leaders have demanded that employers fund many relatively small items that they could easily afford from their compensation. Perhaps the only explanation is the executive hubris of getting more simply because he or she can. Perhaps employers provide these perks because other firms competing for the best employees' services would provide these benefits.

When giving perks, however, employers and employees both must recognize the tax consequences ' all these benefits have a value that frequently must appear in the executive's W-2 at the end of the year. For that reason, many of the agreements I reviewed included 'gross-ups' ' an increase in cash-compensation value to include cash to pay the tax on the other forms of compensation, whether perks or options. This can be particularly important when compensation is not cash, such as with equity and options; employers do not want to force executives (whose long-term incentives are tied to the company's profitability and stock value) to sell shares simply to pay taxes due on their compensation. While gross-up amounts were often not large in the sample, some firms gave considerably more ' $50,000 from CenturyTel, and $43,000 from Northwest Airlines, for example, reflecting the value of the compensation that generated such taxes due.

As mentioned previously, provisions for stock options ' and the consequences for the different termination options ' often constitute the largest part of e-commerce agreements. This isn't surprising, given the complexities of options-based compensation in an era of heightened investor and financial-press scrutiny of such incentives, because of the outsized earnings of those who
have benefited greatly from gambling on contingent compensation. All employers, e-commerce or not, that are publicly owned (or hope to be) must be aware of the SEC's recent requirement for compensation discussion and analysis in financial reporting in structuring options packages.

Although the formalities of the mandatory disclosure can be daunting, several details can be critical for the executive, particularly one who joins a company in its earlier years. For example, dilution will greatly affect options' value ' a grant of a specified number of shares, without more, offers no protection against reduction of the value of that interest if other, later investors or employees receive substantial quantities of stock, or large amounts of equity must be issued in connection with
a corporate combination. Negotiation for options or equity that represents a specific percentage of the company on a fully diluted basis provides greater protection, but can be difficult because it limits the company's future deal-making flexibility.

Similarly, do representations and warranties about the options refer only to a particular class, or to the whole company? Again, holding a large percentage of a certain class may be meaningless if equity or voting control resides with other equity-holders (now or after future corporate changes). Indeed, the employer in the MyPoints.com Inc. agreement reserved the right to replace equity compensation with cash, presumably to prevent an option or equity holder from becoming a 'leverage monster' who could force restructuring of a future deal. As noted above in connection with the term of an employment agreement, long-term vesting requirements are often linked with options, so that an employee cannot profit from the options without devoting a minimum amount of time to the company. At one time, Amazon.com required 10 years' employment, but today most companies typically require an employee to stay for one to three years to take advantage of a perk conditioned on longevity.

IP Competition and Even Boilerplate

The intellectual-property sections of e-commerce agreements are also critical in a business where physical assets and locations generally are non-existent. For example, all technology firms generally reserve to the employer all rights to any inventions or ideas the employee created while employed, and impose stringent confidentiality obligations. Also, that language is found only in a separate non-negotiable form agreement applicable to all employees, rather than in provisions specific to the individual executives and disclosed in a public filing.

Competition is usually prohibited ' but some agreements punt by simply prohibiting 'competition,' and leaving a court to decide what that means. Others focus on restricting use of skills involved, rather than specific jobs. For example, Classmates.com's and United Online's non-competition clauses prohibited activity involving not only 'online social networking,' but also 'online loyalty rewards programs.' E-Trade Financial prohibited employment with specifically named companies or their successors ' a risky practice when firms come and go regularly as markets change. In addition, e-commerce employment agreements should prohibit solicitation of employees and vendors, as well as more typical non-competition or non-solicitation of customers. And because firms and employees change frequently, it is very easy for a defecting employee to take friends with him, or woo away key industry contacts to a new employer. Non-competition agreements for e-commerce firms may also require unusual twists, as, by definition, geography usually doesn't limit e-commerce, except logistically, and so the drafter must consider whether to expressly include international commerce when defining prohibited 'competitive behavior.'

Even boilerplate of e-commerce agreements can be critical. For example, because options-driven compensation makes firms eagerly try to be bought and sold, the quiet 'assignment' clause can have unanticipated consequences if not carefully considered. The Classmates.com agreement required that a successor assume its obligations, so that the executive would be protected (or force the old employer to negotiate compensation with him to meet the demands of an acquiring company that didn't want the burden of obligations to someone whom it would not retain as an employee).

'Survival' clauses protect the employee against the loss of bargained-for benefits following termination. This can be a particularly important provision for indemnification and litigation-defense benefits in a business environment where slight hiccups in business or stock price lead to expensive shareholder litigation. Curiously, however, even though such language is common in traditional corporate settings, it was not universally present in the sample of executive agreements; perhaps that simply reflects that such protection often already is contained in the companies' operating agreements, articles of incorporation or bylaws, to prevent future management from restricting those benefits.

Hardly Anything Is Standard Anymore

Of course, many of the observations in this survey could be made equally about traditional bricks-and-mortar firms. That's because business considerations in attracting good executives aren't limited by a firm's line of business, online or off. Because the developing characteristics of e-commerce make some conventional business aspects more important than others, however, such as the emphasis on options, those drafting employment agreements for an e-commerce firm should carefully consider what aspects of the 'standard' form must be modified to attract and create incentives for the best e-commerce talent. When an e-commerce executive 'works hard for the money,' in an extremely competitive environment, her employer 'better treat her right,' lest she move to an employer who will.

No one would deny that those in the e-commerce economy 'work hard for the money,' in the words of nascent e-commerce entrepreneur and one-time disco queen Donna Summer.

But is 'workin' for a living' any different for an e-commerce manager or executive than for the rest of us? And following the cue of rocker Huey Lewis, a resident of dot-com haven San Francisco, are tech employees just 'taking what they (employers) are giving' like so many others in the competitive world that we have made for ourselves, or do they negotiate specific compensation and benefits suited to their working conditions?

To consider how dot-com employment has evolved over the past few years, I looked at a random sample of recent employment agreements freely available on the Securities and Exchange Commission ('SEC') Web site (http://www.sec.gov/). My unscientific selection, intended to identify current practices and techniques in e-commerce employment contracting, ranged from well known behemoths such as Amazon.com, eBay Inc., and eTrade Financial Corp.com, to lesser known firms such as Hostopia.com Inc., Classmates Media Corp., Mypoints.com Inc. and United Online Inc. I just wanted to see what terms have actually been used in recent agreements, and to see how an e-commerce agreement would look compared to a 'standard' employment form.

Because I have often written about how an e-commerce firm remains a business like any other; I chose to follow the same logic by illustrating how standard elements of a typical employment agreement have been modified to fit today's e-commerce needs. In this way, I hope to show ways in which one should think about modifying e-commerce employment agreements, manuals or policies for one's situation, whether as employer or employee. I will follow the 'typical' structure of an employment agreement, with comments on how and why it perhaps should change for an e-commerce firm.

First Things First

Let's begin with the first lines of the first page ' the parties' names. While the introduction may be a detail that many executives overlook in their haste to get to the compensation section, the names of the employer ' and whoever else signs the agreement on the last page ' carry a heavy legal weight. Whatever the balance sheet and creditworthiness of the principals behind an e-commerce business, all that matters to the employee trying to collect on a contract is the financial strength of the actual employer. Since it's common (and recommended by corporate counsel) to use a newly formed entity, typically an LLC, for a new and risky venture, the employee who does not get a parent or related-party guarantee may find that there's 'no there there' when it's time to collect.

This is particularly important when evaluating equity compensation, a common practice found in the agreements I sampled. If the employer isn't publicly traded, then stock or options must be valued much more carefully, as they cannot easily be converted into cash (at least not until the employee has grown the company into a publicly traded gold mine). For example, Classmates.com's CEO and chairman has a nominal $1 salary ' backed by many equity-driven incentives, in a contract that refers to a contemporaneous initial public offering, or 'IPO.' But having options is no guarantee of wealth, or even of payment ' the many stories returned from a simple Web search on 'worthless options' reveals that tech executives who gambled on equity long after the dot.com balloon burst still suffered the same fate as the irrationally exuberant in the dot.com boom of the late 1990s.

The name of the agreement is also an important indicator, below the CEO level. Many tech firms prefer to employ independent contractors, rather than full-time employees, to control payroll and benefit costs at the most basic level, and to provide flexibility for the inevitable restructurings that will occur in a dynamic market that expands and contracts in very short cycles. Recently, however, state and local wage and hour regulators have aggressively tried to recapture payroll-tax revenue lost by incorrect classification of workers as independent contractors rather than employees. They have vigorously enforced long-standing laws against firms that have abused this technique, aided by new state laws passed after the fallout from the dot-com bust. Similarly, at the federal level, the IRS has targeted FedEx's use of the same technique (albeit not in an e-commerce context).

These two basic facts ' the identity (and solvency) of the employer, and the tax treatment of the employee ' will greatly affect the e-commerce employment relationship, but are rarely a detail scrutinized in a typical job-offer sheet. With enforcement of wage and hour laws now a priority, e-commerce employers must also focus on whether their employees, who frequently work long hours, in fact meet the requirements for an 'exempt' position. (IRS guidelines can be found at www.irs.gov/businesses/small/article/0,,id=115041,00.html and at www.irs.gov/businesses/small/article/0,,id=99921,00.html.) If not, then overtime pay may be owed, even if everyone in the firm is working cooperatively 24/7 with an eye toward an IPO and an options payday (a subject discussed more below).

The Whats and the Wherefores

Next, an employment agreement usually lists the employee's title and duties. While the employer will want to preserve its flexibility to reassign the employee to duties and job location as the business rides the waves of a volatile economy, the employee should try to lock in aspects of the job that are most important to him or her. For example, one executive's agreements with several e-commerce firms have specifically allowed 'the purchase of interests in professional sports teams,' notwithstanding his other duties. A 2006 employment agreement between Hostopia.com and its CEO and COO specifically provided that although the company's offices were located in Canada, the employee would instead be 'headquartered' in Florida, but required to make 'frequent visits' to Canada. The employment agreements of MyPoints.com Inc., a survivor of a combination of firms, named 'Co-Presidents,' showing how evolution in e-commerce is also triggering changes in corporate governance. A contract with United Online specifically granted permission to telecommute. In one case, as an extreme example of an e-executive's power to protect his right to live where he chooses through the flexibility that e-working permits, a 2004 employment agreement of E-Trade Financial Corp. included in the definition of 'Change in Control Period (for) Good Reason,' the occurrence of which would accelerate equity and other contingent compensation, 'the relocation of Executive's principal workplace to a location greater than fifty (50) miles from the prior workplace.'

Indeed, in an industry where physical location of wired executive employees is nearly an irrelevancy, it is not surprising that several firms routinely reimburse substantial expenditures for home Internet access and security systems that would allow a key employee to work wherever he or she prefers to live. Other common distance-working perks include access to use of a company plane (often for the executive and spouse), an apartment at work locations and (less frequently) immigration assistance (a particularly important perk as the engineers who make e-commerce sites run increasingly come from abroad). A 2006 article, available at www.onrec.com/newsstories/13873.asp, lists many of the most common perks, and a similar 2007 survey may be found at www4.cio.com/article/print/156151. Other perks allow 'employees to stay connected to work outside the office' ' and 'stay plugged in to the office long after they've left for the day' ' including cell phones, laptops and Blackberrys, even for middle management, so that 'executives should expect to spend even more of their time on call.'

However, employers that allow employees to work from home a substantial amount of time must also consider whether they must comply with local licensing and tax reporting for doing business where the employee lives. While taxes on such benefits typically would be trivial, the cost of having to qualify the entire company to do business in the executive's home state (if the business is not already registered there) could be substantial.

If (as is common) options are a critical component of compensation, then appointment to the employer's board can be critical to affecting broad strategic decisions that will determine their performance (as well as another generous source of compensation, through directors' fees). While ultimately the shareholders must elect the directors, as a practical matter, in the public corporation an agreement to nominate the employee on the 'company recommended slate' is usually a ticket to the boardroom.

On the other hand, employers also must be sure to specify their demands. A 2004 contract of Amazon Global Resources Inc. specifically required a senior vice president, who reported directly to CEO and President Jeff Bezos, to work in Amazon.com's 'customer service center,' to 'keep (its) senior employees in direct contact with (its) customers.' On paper, at least, that duty was not trivial ' the employee had to perform that duty almost immediately, 'for three days during (his) first six months of employment and on a regular basis thereafter.'

Although serving on other corporate boards has long been a valuable way for senior executives to obtain experience and network at the highest corporate levels (and diversify their options portfolio), E-Trade Financial once specifically prohibited such outside business-related activity without prior written approval, and even with approval, limited service on other boards ' including nonprofits ' to two directorships. (In more recent agreements, however, it removed that cap, as long as the outside service did not 'adversely affect the performance of Executive's duties,' and required that the executive agree to resign immediately from outside positions if requested by E-Trade Financial's board.)

The term of an employment agreement also generally appears near the beginning. Executives often demand protection of a fixed term, so that they know they'll be compensated for their commitment if their plans do not succeed, or they have a difference of opinion with the board. But that choice may limit their ability to leave the company freely to pursue another opportunity if the current job isn't successful. Yet, from the opposite perspective, many of the e-commerce contracts were 'at will' ' either the company or the employee could terminate at any time. From the sample, this was the case for agreements with Amazon Global Resources (an affiliate of Amazon.com), MyPoints.com, Inc., and eBay.

In both models, the employee's ability to retain portions of compensation is frequently linked to long-term employment. Sometimes this occurs through commonly used options subject to vesting, requiring continued employment. Another technique grants cash bonuses payable only if the employee remains employed at a specified time in the future (from three to 10 years), as with eBay and Amazon agreements. Of course, being an at-will employee does not leave the employee penniless on termination ' the language defining 'cause' has simply migrated to the options section, in specifying the executive's rights to retain and exercise options following different types of termination. Also, as all firms (tech or not) find it convenient to operate through many subsidiary and affiliate relationships, two e-commerce firms, Hostopia.com and e-Trade, specifically deem a resignation from the parent company as a simultaneous resignation from all positions with all affiliates.

Creativity Can Equal Great Perks, Too

In an industry that rewards innovation, e-commerce executives have demonstrated creativity in restructuring their perks, as well as their Web sites. For example, as seen in the discussion of employee duties above, the need for remote work continues to be critical to e-commerce, and drives employee demand for perks that facilitate such work. With the stress of having to be available to everyone, all the time, everywhere, it's not surprising how many agreements specifically mandate certain health benefits, such as physicals and wellness programs, to keep executives alive and healthy; a dead e-commerce executive can't be replaced as easily as a failed router or hyperlink. Outside e-commerce, many firms provide perks unique to their business, presumably to demonstrate that senior management has confidence in its own products ' a home-cooling system from Lennox, clothing from Claiborne, and a waiver of investment fees and receipt of other advisory services from Ameriprise and other financial-services providers. Given that executive duties often involve substantial social and professional demands outside the workplace, these perks frequently extend to spouses.

Of course, one might reasonably question why (as in bricks-and-mortar firms as well) e-commerce leaders have demanded that employers fund many relatively small items that they could easily afford from their compensation. Perhaps the only explanation is the executive hubris of getting more simply because he or she can. Perhaps employers provide these perks because other firms competing for the best employees' services would provide these benefits.

When giving perks, however, employers and employees both must recognize the tax consequences ' all these benefits have a value that frequently must appear in the executive's W-2 at the end of the year. For that reason, many of the agreements I reviewed included 'gross-ups' ' an increase in cash-compensation value to include cash to pay the tax on the other forms of compensation, whether perks or options. This can be particularly important when compensation is not cash, such as with equity and options; employers do not want to force executives (whose long-term incentives are tied to the company's profitability and stock value) to sell shares simply to pay taxes due on their compensation. While gross-up amounts were often not large in the sample, some firms gave considerably more ' $50,000 from CenturyTel, and $43,000 from Northwest Airlines, for example, reflecting the value of the compensation that generated such taxes due.

As mentioned previously, provisions for stock options ' and the consequences for the different termination options ' often constitute the largest part of e-commerce agreements. This isn't surprising, given the complexities of options-based compensation in an era of heightened investor and financial-press scrutiny of such incentives, because of the outsized earnings of those who
have benefited greatly from gambling on contingent compensation. All employers, e-commerce or not, that are publicly owned (or hope to be) must be aware of the SEC's recent requirement for compensation discussion and analysis in financial reporting in structuring options packages.

Although the formalities of the mandatory disclosure can be daunting, several details can be critical for the executive, particularly one who joins a company in its earlier years. For example, dilution will greatly affect options' value ' a grant of a specified number of shares, without more, offers no protection against reduction of the value of that interest if other, later investors or employees receive substantial quantities of stock, or large amounts of equity must be issued in connection with
a corporate combination. Negotiation for options or equity that represents a specific percentage of the company on a fully diluted basis provides greater protection, but can be difficult because it limits the company's future deal-making flexibility.

Similarly, do representations and warranties about the options refer only to a particular class, or to the whole company? Again, holding a large percentage of a certain class may be meaningless if equity or voting control resides with other equity-holders (now or after future corporate changes). Indeed, the employer in the MyPoints.com Inc. agreement reserved the right to replace equity compensation with cash, presumably to prevent an option or equity holder from becoming a 'leverage monster' who could force restructuring of a future deal. As noted above in connection with the term of an employment agreement, long-term vesting requirements are often linked with options, so that an employee cannot profit from the options without devoting a minimum amount of time to the company. At one time, Amazon.com required 10 years' employment, but today most companies typically require an employee to stay for one to three years to take advantage of a perk conditioned on longevity.

IP Competition and Even Boilerplate

The intellectual-property sections of e-commerce agreements are also critical in a business where physical assets and locations generally are non-existent. For example, all technology firms generally reserve to the employer all rights to any inventions or ideas the employee created while employed, and impose stringent confidentiality obligations. Also, that language is found only in a separate non-negotiable form agreement applicable to all employees, rather than in provisions specific to the individual executives and disclosed in a public filing.

Competition is usually prohibited ' but some agreements punt by simply prohibiting 'competition,' and leaving a court to decide what that means. Others focus on restricting use of skills involved, rather than specific jobs. For example, Classmates.com's and United Online's non-competition clauses prohibited activity involving not only 'online social networking,' but also 'online loyalty rewards programs.' E-Trade Financial prohibited employment with specifically named companies or their successors ' a risky practice when firms come and go regularly as markets change. In addition, e-commerce employment agreements should prohibit solicitation of employees and vendors, as well as more typical non-competition or non-solicitation of customers. And because firms and employees change frequently, it is very easy for a defecting employee to take friends with him, or woo away key industry contacts to a new employer. Non-competition agreements for e-commerce firms may also require unusual twists, as, by definition, geography usually doesn't limit e-commerce, except logistically, and so the drafter must consider whether to expressly include international commerce when defining prohibited 'competitive behavior.'

Even boilerplate of e-commerce agreements can be critical. For example, because options-driven compensation makes firms eagerly try to be bought and sold, the quiet 'assignment' clause can have unanticipated consequences if not carefully considered. The Classmates.com agreement required that a successor assume its obligations, so that the executive would be protected (or force the old employer to negotiate compensation with him to meet the demands of an acquiring company that didn't want the burden of obligations to someone whom it would not retain as an employee).

'Survival' clauses protect the employee against the loss of bargained-for benefits following termination. This can be a particularly important provision for indemnification and litigation-defense benefits in a business environment where slight hiccups in business or stock price lead to expensive shareholder litigation. Curiously, however, even though such language is common in traditional corporate settings, it was not universally present in the sample of executive agreements; perhaps that simply reflects that such protection often already is contained in the companies' operating agreements, articles of incorporation or bylaws, to prevent future management from restricting those benefits.

Hardly Anything Is Standard Anymore

Of course, many of the observations in this survey could be made equally about traditional bricks-and-mortar firms. That's because business considerations in attracting good executives aren't limited by a firm's line of business, online or off. Because the developing characteristics of e-commerce make some conventional business aspects more important than others, however, such as the emphasis on options, those drafting employment agreements for an e-commerce firm should carefully consider what aspects of the 'standard' form must be modified to attract and create incentives for the best e-commerce talent. When an e-commerce executive 'works hard for the money,' in an extremely competitive environment, her employer 'better treat her right,' lest she move to an employer who will.