Canada's highest-paid executives are known for their sharp negotiating skills—except when it comes to their own employment contracts, writes Howard Levitt. They will spend weeks refining compensation details: base salary, bonus targets, signing incentives, and title. They argue over optics, reporting lines, and prestige. Yet, almost as an afterthought, they sign equity documents they have barely read, let alone understood.
The Real Money Is in Equity
For executives earning $1 million or more, salary is often the smallest component of compensation. The real upside lies in restricted share units, stock options, performance share units, or carried interest. However, those same executives routinely discover, much too late, that the largest portion of their compensation is governed by documents designed to defeat their expectations.
Equity Is Not Ownership
Executives speak about equity as if they 'own' it. In most cases, they do not. Unvested equity is not property in any meaningful sense. It is a conditional promise, governed by plan documents that almost always favour the employer. Those documents are drafted with one objective: to limit what happens on the way out. And there is always a way out.
Common and Costly Mistakes
One of the most common and costly mistakes is failing to align the employment agreement with the equity plan. The employment contract may say nothing about equity continuation on termination. The equity plan, buried in a separate document, will say everything. Typically, it will provide that upon termination, even without cause, unvested equity is forfeited immediately—not reduced, not prorated, but eliminated.
Executives assume that their equity will continue to vest during the reasonable notice period that courts award. Increasingly, courts are saying otherwise. If the plan language is clear, it governs. That is not a technicality. It is often the difference between leaving with millions or leaving with nothing beyond salary-based severance.
The 'Without Cause' Misconception
There is a persistent belief that if an executive is terminated without cause, they will be 'made whole.' That belief is wrong. 'Without cause' simply means that the employer chose to end the relationship without alleging gross willful misconduct. It does not guarantee the continuation of incentive compensation, equity vesting, or bonus entitlements. Those rights exist only if they are protected. In most cases, they are not.
In the landmark case Matthews v. Ocean Nutrition Canada Ltd., which Levitt successfully argued before the Supreme Court of Canada, the decision favoured the employee. Since then, employers have tried to buttress their agreements. Still, legal creativity is often required to navigate these challenges.
