Avon freshens up Jung’s employment contract…

December 9, 2008

For a company that relies on women growing tired of their lipstick or face cream or fragrance, the 8K filed by Avon Products (AVP) late yesterday seems downright bizarre. Are we really supposed to believe that the last time Avon freshened up CEO Andrea Jung’s employment contract, the Titanic was packing movie theaters?

And yet, there it is in the amended contract filed yesterday — an update to an agreement dated Dec. 11, 1997. On the surface, the changes were to correct some issues regarding 409A — something many companies have been doing lately given the upcoming deadline. Indeed, the 8K notes that the change was “primarily to bring such agreement into compliance with Section 409A of the Internal Revenue Code.”

But a comparison of Jung’s 1997 contract to the one just filed shows a number of other changes, including a 275% increase in her base salary (compare that to the more modest 18.7% return for Avon shareholders during the same period). To be fair, Jung’s salary has been $1.375 million for the past few years, even if the employment agreement still said $500K. Still, it’s pretty odd to have an open-ended employment contract with a CEO that doesn’t renew after three or even five years. Jung’s new agreement also says the salary can’t fall below the $1.375 million and can only go up.

Deeper down, there’s also some interesting (and confusing) language that makes it seem as if Jung leaves, the company is required to pay her a salary and bonus through her 65th birthday. She’s currently 49, so that’s not an insignificant amount. And there’s some new language on vesting of stock and options following a change in control as well as the requisite tax gross-up. Indeed, the section on the gross-up covers more scenarios than I’ve seen in most contracts, which makes it pretty interesting to read. Finally, there’s some new non-compete language that prohibits Jung from working for several other companies for two years after she leaves Avon.

Weighing in at 28-pages, Jung’s new contract is pretty complicated. Perhaps that’s why Avon waited 10 years to refresh it: the lawyer fees alone for drafting this thing had to be pricey.

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