Robert Farrell recognized how the negotiating climate had changed when he entered talks with the board of directors of Columbia, Md.-based enterprise software developer Metastorm Inc. for the chief executive officer's position there.

"The first thing I noticed was that boards are interested in performance metrics," says Mr. Farrell, who accepted the CEO's slot at Metastorm on Aug. 1. "They're interested in [profit-and-loss] statements [and] the top and the bottom line. Before, all they were interested in was market share. Now they want to tie real performance in with compensation."

Top managers' employment contracts -- like Mr. Farrell's -- aren't the goody bags they once were, thanks to the economic slowdown and alleged executive misdeeds.

These forces have eroded executives' clout at the bargaining table and given employers greater power. Top corporate officials are now being asked to sign contracts providing companies with greater protection against liability and linking pay more closely to performance.

Agreements inked for 2003 aren't likely to be overly generous given the moribund stock market and widespread cost controls. Median cash pay for chief executive officers rose a paltry 1% in 2002 -- a decline of one percentage point -- from the 2001 median amount, according to Pearl Meyer & Partners, a practice of Clark/Bardes Consulting, a Barrington, Ill.-based human-resources consulting firm. The typical CEO now earns total annual compensation -- salary and bonus -- of $3 million, the firm reports.

Some of the new frugality may be due to shareholder pressure. Investors are scrutinizing executive pay and studying its impact on company performance and profitability.

And, due to recent corporate financial scandals, CEOs and other top executives who receive agreements are being asked to indemnify their employers against any bad-faith conduct committed in the course of business.

These developments are part of the new corporate back-to-basics movement that emphasizes better board governance, says Michael Graham, vice president of Clark/Bardes Consulting, who is based in New York City.

Board compensation committees are becoming more involved in executive-compensation issues and are using employment contracts to accomplish specific goals, he says. "They have found religion, so to speak," says Mr. Graham. "The efforts they're putting into reviewing compensation agreements have dramatically changed. They're spending three to four times longer on these agreements than they did in the past."

CEO contracts typically last between one and five years. Newly hired CEO contracts extend for 4.3 years, but the average CEO's agreement lasts just 3.7 years.

These terms may shorten in the future, and contract renewals may not be automatic, says Terri Cammarano, a partner in the Los Angeles law firm of Foley & Lardner who helps executives negotiate agreements with employers. Indeed, only 53% of CEO contracts contain clauses that automatically extend their employment term, according to Clark/Bardes.

"I don't think we're going to see a lot of 'evergreen' contracts in the future," says Mr. Graham. "That's a major change for chief executives who could automatically assume that, once they went past the initial term, they would have their contract renewed. Two years from now, that won't be the case."

Noncompete Clauses

To protect themselves, many employers are putting noncompete or confidentiality clauses into executive agreements. The clauses are designed to protect a company's intellectual property, such as patents, product designs or trade secrets, after an executive leaves the firm.

Typically, noncompete clauses prevent executives from working for competitors for a specific time period. Confidentiality clauses bar executives from disclosing information about a company. About three-fourths of companies include noncompete and confidentiality clauses in their executive contracts, with the average ban lasting 2.1 years following termination, reports Clark/Bardes.

Some clauses call for intelligence-agency-style secrecy. For instance, when Jeff Lord accepted a position with a Northeastern U.S. utility company in early 2002, he signed an employment contract with a confidentiality clause that prevents the 39-year-old executive from disclosing where he works and his role there. His job is highly confidential because it involves product development. Previously, he worked at Fortune 1000 telecommunication firms as a vice president or director-level business-development executive.

Mr. Lord, who's based in Burlington, Vt., says his power to negotiate declined due to the recession and that other executives may find themselves in the same boat.

"With all the refugees from the failed dot-com and telecom companies, there are thousands of executives looking for jobs," says Mr. Lord. "It used to be that one could say, 'Here's what I want to do and where I want to work.' But now the shoe is on the other foot."

Other restrictive clauses include nonsolicitation provisions designed to keep executives from hiring the rest of the company's talent away after leaving, says Bob Lanza, a partner with law firm Sonnenschein, Nath & Rosenthal in New York, who represents executives in contract talks. And some employers want executives to be designated as "at will" employees, which means they can be fired anytime with or without cause.

"Companies try to put all kinds of restrictions on competition during and after the employment term," says Mr. Lanza, former chief counsel of the National Basketball Players Association. "They want to ensure that if you join their organization and know everything about [it], you won't be out there two or three years from now competing against them."

The Tide May Turn in 2003

Although employers now have the upper hand, executives hope economic recovery will allow them to regain it shortly. Clearly, companies with financial-performance measures in place will be able to identify executives who influence the bottom line. If they show good results, these managers will have little difficulty at the bargaining table.

Consider, says Mr. Graham the CEO whose move to a competitor triggered a selloff in his former company's stock and a price gain for the competitor's. Such an executive can ask for any terms he wants, says Mr. Graham.

"If you've got somebody who can move one firm's stock down 4% and another's up 5%, it's [like having] an athlete who can fill the stadium," he says. "That gives the individual a lot more power to negotiate better deals in the future."

Terms to Request

Nevertheless, even in the more austere environment, "there are as many contractual arrangements as there are contracts," says Mike Vermillion, founder of the Vermillion Group, an executive-search firm in Des Moines, Iowa, which is affiliated with Management Recruiters International.

To improve your negotiating ability, study salary surveys to determine the going pay rate for an executive in the same job at similar-sized firms, regions and market niches, says Mr. Lanza. Also determine typical elements of compensation, such as long-term bonuses, stock options or stock grants, for someone at your level.

"You need to compare yourself against other folks in the industry, or you may undersell yourself," he says. Also ask for financial protection in case you're laid off because of a merger or acquisition.

Some executives are leery of pay packages that are heavily weighted toward options.

"It's not as easy as it was a few years ago to lure executives with equity," particularly for companies whose shares aren't publicly traded, says Ms. Cammarano. "Executives are realizing that stock in private companies may never be marketable and are more interested in sharing in the company's profits than actual ownership."

At 85% of companies, CEOs have contracts providing for an annual bonus based on performance, reports Clark/Bardes. Other common compensation elements in CEO contracts, in order of prevalence, include:

For lower level executives, perks specified in contracts are less generous and don't include travel for spouses or security protection. Pay structures and performance incentives also differ.

At all levels, retirement provisions are important, with even small companies finding they need to offer and contribute to 401(k) plans to attract top talent.

Due to new rules requiring top executives to certify company financial statements, some executives request corporate errors-and-omissions insurance and indemnification for errors made in good faith, not as a result of fraud.

Generally, companies will indemnify executives for civil litigation, which means covering costs involved in civil suits. However, they won't protect them against criminal charges pursued by prosecutors, says Mr. Lanza.

Some executives also are asking for a greater say in hiring as added protection against staff misconduct. For example, some chief financial officers want to approve staff accounting or auditing hires, whose mistakes could wreak havoc on a CFO's reputation. "Executives justifiably want to have more of a say in the selection and supervision of the folks who prepare the financial data and handle funds," says Ms. Cammarano.

Most contracts specify that disputes be handled through arbitration by a retired judge or arbitrator accredited by the American Arbitration Association. However, be careful about making extreme demands that seem unreasonable. Boards of directors are shying away from negative publicity such demands might cause in the business press.

For instance, a Boston-based executive recruiter recalls a top executive whose company paid for his phone calls to family in India. But when renegotiating, the executive nearly lost his contract by asking for the dollar amount of the calls to be added to his compensation.