Back to Blog

Compensation Vs. Supplemental Agreements in Business Contracts


Contracts come in all shapes and sizes and address a range of business issues. Broadly speaking, most contracts involve an agreement between two parties for the payment of money in exchange for the provision of goods or services. Of course, there are a lot of different types of contracts, and many are far more nuanced than that. And, many agreements may not actually be labeled as contracts but are in fact such. For example, documents known as licensing agreements, non-disclosure or confidentiality agreements, and non-competes are all types of contracts, even though the names of these agreements may not immediately suggest that. Two common agreements used alongside or in addition to a regular business contract are the compensation agreement and the supplemental agreement. Here is a quick explanation of these contracts:

Compensation Agreements

The name of this kind of contract is pretty self explanatory. In a compensation agreement, the parties state the amount of money that will be paid to the other party as compensation for the performance of some action. Given that the compensation agreement is tailored to address a monetary exchange, these agreements usually include a detailed payment schedule, as well as the manner in which the payments will be made.

It is important to note that compensation agreements may be used between firms or between a firm and an individual. For example, a compensation agreement may be drafted to explain the payments that will be made to an individual for contracted consulting work. This agreement may even address things such as potential overtime, bonuses, or other financial incentives for good work. In some instances, the terms of a compensation agreement are folded into the contract dealing with the prospective exchange. However, that is not always the case, as there may be a more generic contract drafted to address the terms and conditions of the work to be performed, and then the compensation agreement is used separately to specify payment details.

Supplemental Agreements

A supplemental agreement can be used in number of different circumstances. As the name suggests, a supplemental agreement is generally used to supplement some other agreement already in existence. Thus, it is normally a secondary agreement used to augment a primary agreement. In some situations, it may make sense for parties to use an amendment to make a change to a contract or an addendum to add to a contract. However, a supplemental agreement is often used to elaborate on a particular aspect of a contract, without making any actual changes to the original agreement.

For example, if parties to a contract sign a non-disclosure and confidentiality agreement, it may be necessary to create a supplemental agreement down the road to clarify the information that is subject to the non-disclosure rules. This would not be changing the initial agreement, but rather expanding on the intended meaning of the original contract. Thus, it is evident that supplemental agreements can be quite useful to ensure adequate understanding of a particular portion of a contract. The key with these agreements is to make is abundantly clear which section of a contract must be expounded upon.

New Call-to-action