Management Contract – What It Is and When It’s Worth Signing

A management contract is a special type of agreement between an employer and a manager. Unlike traditional employment contracts, a management contract regulates the detailed terms of cooperation at higher organizational levels. Its purpose is not only to define the manager’s duties but also to set the terms of compensation, the scope of responsibilities, and the dispute resolution process. It is an agreement that provides both parties with clear rules while maintaining flexibility in organizational matters.

What is a Management Contract?

A management contract is a civil law agreement that regulates the relationship between an employer and an individual in a managerial position. In this contract, both parties establish not only the terms related to compensation but also the principles of responsibility, goals to be achieved, and the duration of the cooperation. It is commonly used for higher-level managers such as directors or board members. When signing a management contract, both parties are obliged to follow the conditions specified in the agreement, but they are not bound by labor law provisions as in traditional employment contracts.

When Is It Worth Entering into a Management Contract?

There are several situations where entering into a management contract benefits both parties:

1. For Senior Managers: Individuals holding management positions such as directors, CEOs, or board members often prefer management contracts because they offer greater flexibility and a tailored approach to compensation and responsibility. A management contract can provide more freedom in setting salary, bonuses, and other benefits.
2. When Specific Goals and Results Are Important: If a company wants to set specific goals and expectations for a manager’s performance, a management contract is the best solution. It can include bonuses for achieving goals or a specified time frame for completing tasks.
3. For Fixed-Term Cooperation: Sometimes, cooperation with a manager is limited to a specific project or period, such as during a management change, the implementation of new strategies, or a company restructuring. In such cases, a management contract allows for clear terms for a fixed period.
4. For Greater Flexibility: Unlike traditional employment contracts, a management contract allows for more flexibility in setting work hours, methods of performing duties, and negotiating compensation. This type of agreement gives both the employer and the manager greater autonomy in organizing work.

Contents of a Management Contract

A management contract should contain several key elements to ensure transparency and clearly defined terms of cooperation. Among the most important elements to include in such a document are:

• Scope of Responsibilities: A clear definition of the manager’s responsibilities, their scope of work, and the goals they are expected to achieve.
• Compensation and Additional Benefits: The management contract should include precise agreements regarding salary, bonuses, commissions, and other forms of compensation, such as company cars or health insurance coverage.
• Duration of the Agreement: The contract should specify the duration of the agreement, with the possibility of extension.
• Conditions for Termination: The terms on which the contract can be terminated by either party.
• Rights and Duties of Both Parties: The rules regarding the manager’s rights, such as access to training or company documentation, as well as their obligations, such as reporting results.
• Responsibility and Settlement Procedures: A definition of the manager’s responsibility for achieving set goals and the details regarding settlement procedures and reporting.

Summary

A management contract is an essential tool for both managers and employers. Through this document, the terms of cooperation, goals, compensation rules, and responsibilities can be clearly defined. This is particularly important for senior managers who play key roles in companies. Entering into a management contract gives both parties certainty about how the cooperation should unfold, which helps avoid misunderstandings and issues in the future.