<PAGE>   1


                                                                    EXHIBIT 10.3


                              EMPLOYMENT AGREEMENT

WASTE MANAGEMENT, INC. (the "Company"), and THOMAS L. SMITH (the "Executive")
hereby enter into this EMPLOYMENT AGREEMENT ("Agreement"), executed the day and
year written below, but effective as of November 18, 1999, as follows:

1.    EMPLOYMENT.

The Company shall employ Executive, and Executive shall be employed by the
Company upon the terms and subject to the conditions set forth in this
Agreement.

2.    TERM OF EMPLOYMENT.

The period of Executive's employment under this Agreement shall commence on
11-22-99, and be for a continuously renewing (on a daily basis) three (3) year
term, without any further action by either the Company or Executive, unless
Executive's employment is terminated in accordance with Section 5 below. The
date on which Executive commences employment with the Company shall be referred
to as the "Commencement Date" and the period during which Executive is employed
hereunder shall be referred to as the "Employment Period".

3.    DUTIES AND RESPONSIBILITIES.

(a)   Executive shall serve as Sr. Vice President-Information Technology.
      Executive will report either to the Chief Executive Officer, President, or
      Executive Vice President designated by the Chief Executive Officer. In
      such capacity, Executive shall perform such duties and have the power,
      authority and functions commensurate with such positions in similarly
      sized public companies and such other authority and functions consistent
      with such positions as may be assigned to Executive from time to time by
      the Chief Executive Officer, President, Executive Vice President, or the
      Board of Directors.

(b)   Executive shall devote substantially all of his working time, attention
      and energies to the business of the Company, and affiliated entities.
      Executive may make and manage his personal investments (provided such
      investments in other activities do not violate, in any material respect,
      the provisions of Section 8 of this Agreement), be involved in charitable
      and professional activities and, with the consent of the Board, serve on
      boards of other for profit entities, provided such activities do not
      materially interfere with the performance of his duties hereunder.

4.    COMPENSATION AND BENEFITS.

(a)   BASE SALARY. During the Employment Period, the Company shall pay Executive
      a base salary at the annual rate of TWO HUNDRED EIGHTY THOUSAND
      ($280,000.00) DOLLARS per year or such higher rate as may be determined
      from time to time by the Company ("Base Salary"). Such Base Salary shall
      be paid in accordance with the Company's standard payroll practice for its
      executive officers. Once increased, Base Salary shall not be reduced.


                                  Page 1 of 19
<PAGE>   2


(b)   ANNUAL BONUS. During the Employment Period, Executive will be entitled to
      participate in an annual incentive compensation plan of the Company. The
      Executive's target annual bonus will be forty-five percent (45%) of his
      Base Salary as in effect for such year (the "Target Bonus"), and his
      actual annual bonus may range from 0% to 90% (two times Target Bonus), and
      will be determined based upon achievement of performance goals (initially
      seventy percent [70%] financial [return on capital investments and EBITDA]
      and thirty percent [30%] personal, but may be tied to other metrics as may
      be established from time to time by the Compensation Committee of the
      Board) as approved by the Compensation Committee of the Board, from time
      to time.

(c)   STOCK OPTIONS. Subject to the approval of the Compensation Committee of
      the Board of Directors, Executive shall be granted an initial stock option
      grant for ONE HUNDRED THOUSAND (100,000) shares of the Company's common
      stock, effective as of the Commencement Date. The exercise price shall be
      the fair market value on such date, and the option shall vest in equal
      installments of twenty-five percent (25%) in each of the first four (4)
      anniversaries of the Commencement Date. Executive shall be eligible to be
      considered for stock option grants under the Company's annual stock option
      award program as administered by, and at the discretion of, the
      Compensation Committee of the Board of Directors, commencing in 2001.

(d)   BENEFIT PLANS AND VACATION. Executive shall be eligible to participate in
      or receive benefits under any pension plan, profit sharing plan, medical
      and dental benefits plan, life insurance plan, short-term and long-term
      disability plans, or any other health, welfare or fringe benefit plan,
      generally made available by the Company to its executive officers at a
      level commensurate with his position. All waiting periods for welfare
      plans shall be waived for Executive and Executive's eligible family
      members. During the Employment Period, Executive shall be entitled to
      vacation each year in accordance with the Company's policies in effect
      from time to time, but in no event less than four (4) weeks paid vacation
      per calendar year. The Executive shall also be entitled to such periods of
      sick leave as is customarily provided by the Company for its senior
      executive employees. Executive shall be eligible to participate in the
      Company's 401(k) Plan after 90 days of employment. Executive shall be
      eligible to participate in the Company's Employee Stock Purchase Plan
      beginning January 1, 2000.

(e)   EXPENSE REIMBURSEMENT. The Company shall promptly reimburse Executive for
      the ordinary and necessary business expenses incurred by Executive in the
      performance of the duties hereunder in accordance with the Company's
      customary practices applicable to its executive officers.

(f)   SIGN-ON BONUS. Within thirty (30) days after the Commencement Date, the
      Company will pay Executive a sign-on bonus in the amount of ONE HUNDRED
      TWENTY THOUSAND DOLLARS ($120,000). As of the date of the execution of
      this Agreement, Executive acknowledges having received this sign-on bonus.

(g)   EXECUTIVE DEFERRAL PLAN. Executive shall be entitled to participate in the
      Company's "Executive Deferral Plan" beginning January 1, 2000, and any
      incentive or supplemental compensation plan, or arrangement, all to the
      extent maintained or instituted by the


                                  Page 2 of 19
<PAGE>   3


      Company, and covering its principal executive officers, at a level
      commensurate with his position.

(h)   RETIREMENT BENEFIT. Upon Executive's retirement from the Company following
      Executive attaining sixty-five (65) years of age, and provided that
      Executive's employment is not terminated for Cause, the Company will
      provide Executive an annual retirement benefit in the amount of
      FIFTY-THOUSAND DOLLARS ($50,000.00) cash per year for the remainder of his
      life. This retirement benefit will vest in twenty percent (20%) increments
      (or $10,000.00) on each of the Executive's five (5) birthdays beginning on
      the date Executive attains sixty-one (61) years of age, provided Executive
      is employed by the Company on each such birth date. Executive may elect to
      retire from the Company prior to his sixty-fifth birthday, and receive the
      annual retirement benefit to the extent it is then vested. No amounts will
      be paid under this paragraph prior to Executive's retirement (or death, if
      sooner). The annual retirement benefit will be paid on the date of
      Executive's retirement and on each anniversary of such date of retirement
      for as long as such amount is to be paid under this paragraph. Following
      Executive's death, such annual retirement benefit, to the extent vested,
      will thereafter be paid to Executive's wife, Nancy Smith, if she survives
      Executive, for the remainder of her life, with such amount being paid on
      each anniversary of Executive's birth date; provided that in the event
      Executive is less than forty percent (40%) vested at his death, he will be
      deemed to be forty percent (40%) vested at his death, so that upon
      Executive's death, his wife, if she survives Executive, will receive at
      least $20,000.00 per year on each anniversary of Executive's birth date
      for the remainder of her life, under this paragraph. (For example, if
      Executive elects to retire immediately following his 62nd birthday,
      Executive will receive an annual retirement benefit of $20,000 per year,
      and following Executive's death, if Executive's wife, Nancy Smith,
      survives Executive, such $20,000 per year will be paid to her for the
      remainder of her life on Executive's birth date). No amounts will be
      payable under this paragraph following the death of both Executive and his
      wife, Nancy Smith.

(i)   RELOCATION. The Company shall promptly reimburse Executive (on a fully
      grossed up basis for any amounts taxable to Executive), to the extent not
      already reimbursed by the Company, for reasonable and customary costs
      incurred in connection with the relocation of his principal residence to
      the Houston, Texas area at a level commensurate with Executive's position
      and the type of relocation benefits provided by public companies of
      similar size to their executives, which shall in any event include the
      purchase by the Company (or a relocation company) of such residence at its
      fair market value if not sold within 90 days from the Commencement Date,
      any real estate commissions incurred in connection with the sale of such
      residence and any points on a loan for a new home. In addition, the
      Company shall provide Executive temporary housing in the Houston area for
      up to six (6) months from the Commencement Date.


5.    TERMINATION OF EMPLOYMENT.

Executive's employment hereunder may be terminated under the following
circumstances:


                                  Page 3 of 19
<PAGE>   4


(a)   DEATH. Executive's employment hereunder shall terminate upon Executive's
      death.


(b)   TOTAL DISABILITY. The Company may terminate Executive's employment
      hereunder upon Executive becoming "Totally Disabled". For purposes of this
      Agreement, Executive shall be "Totally Disabled" if Executive has been
      physically or mentally incapacitated so as to render Executive incapable
      of performing Executive's material usual and customary duties under this
      Agreement for six (6) consecutive months (such consecutive absence not
      being deemed interrupted by Executive's return to service for less than 10
      consecutive business days if absent thereafter for the same illness or
      disability). Any such termination shall be upon thirty (30) days written
      notice given at any time thereafter while Executive remains Totally
      Disabled, provided that a termination for Total Disability hereunder shall
      not be effective if Executive returns to full performance of his duties
      within such thirty (30) day period.

(c)   TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
      Executive's employment hereunder for "Cause" at any time within ninety
      (90) days after the Chairman of the Audit or Governance Committee of the
      Board has knowledge thereof.

      (i)   For purposes of this Agreement, the term "Cause" shall be limited to
            (1) willful misconduct by Executive with regard to the Company which
            has a material adverse effect on the Company; (2) the willful
            refusal of Executive to attempt to follow the proper written
            direction of the Chief Executive Officer, the President, an
            Executive Vice President, or the Board of Directors, provided that
            the foregoing refusal shall not be "Cause" if Executive in good
            faith believes that such direction is illegal, unethical or immoral
            and promptly so notifies the Board; (3) substantial and continuing
            willful refusal by the Executive to attempt to perform the duties
            required of him hereunder (other than any such failure resulting
            from incapacity due to physical or mental illness) after a written
            demand for substantial performance is delivered to the Executive by
            the Chief Executive Officer, the President, an Executive Vice
            President, or the Board of Directors, which specifically identifies
            the manner in which it is believed that the Executive has
            substantially and continually refused to attempt to perform his
            duties hereunder; or (4) the Executive being convicted of a felony
            (other than a felony involving a traffic violation or as a result of
            vicarious liability). For purposes of this paragraph, no act, or
            failure to act, on Executive's part shall be considered "willful"
            unless done or omitted to be done, by him not in good faith and
            without reasonable belief that his action or omission was in the
            best interests of the Company.

      (ii)  A Notice of Termination for Cause shall mean a notice that shall
            indicate the specific termination provision in Section 5(c)(i)
            relied upon and shall set forth in reasonable detail the facts and
            circumstances which provide for a basis for termination for Cause.
            Further, a Notification for Cause shall be required to include a
            copy of a resolution duly adopted by at least two-thirds (2/3rds) of
            the entire membership of the Board at a meeting of the Board which
            was called for the purpose of considering such termination and which
            Executive and his


                                  Page 4 of 19
<PAGE>   5


            representative had the right to attend and address the Board,
            finding that, in the good faith of the Board, Executive engaged in
            conduct set forth in the definition of Cause herein and specifying
            the particulars thereof in reasonable detail. The date of
            termination for a termination for Cause shall be the date indicated
            in the Notice of Termination. Any purported termination for Cause
            which is held by a court or arbitrator not to have been based on the
            grounds set forth in this Agreement or not to have followed the
            procedures set forth in this Agreement shall be deemed a termination
            by the Company without Cause.

(d)   VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
      hereunder with or without Good Reason at any time upon written notice to
      the Company.

      (i)   A Termination for Good Reason means a termination by Executive by
            written notice given within ninety (90) days after the occurrence of
            the Good Reason event, unless such circumstances are fully corrected
            prior to the date of termination specified in the Notice of
            Termination for Good Reason. For purposes of this Agreement, "Good
            Reason" shall mean the occurrence or failure to cause the
            occurrence, as the case may be, without Executive's express written
            consent, of any of the following circumstances: (1) any material
            diminution of Executive's positions, duties or responsibilities
            hereunder (except in each case in connection with the termination of
            Executive's employment for Cause or Total Disability or as a result
            of Executive's death, or temporarily as a result of Executive's
            illness or other absence), provided that the change in reporting
            structure where Executive reports to either an Executive Vice
            President of the Company or higher in the Company shall not
            constitute Good Reason under any circumstances; further provided
            that if the Company becomes a fifty percent or more subsidiary of
            any other entity, Executive shall be deemed to have a material
            diminution of his position unless he is also a Sr. Vice President of
            the ultimate parent entity; (2) removal of, or the non-re-election
            of, the Executive from officer positions with the Company specified
            herein or removal of the Executive from any of his then officer
            positions; (3) requiring Executive's principal place of business to
            be located other than in Houston, Texas; (4) a failure by the
            Company (I) to continue any bonus plan, program or arrangement in
            which Executive is entitled to participate (the "Bonus Plans"),
            provided that any such Bonus Plans may be modified at the Company's
            discretion from time to time but shall be deemed terminated if (x)
            any such plan does not remain substantially in the form in effect
            prior to such modification and (y) if plans providing Executive with
            substantially similar benefits are not substituted therefor
            ("Substitute Plans"), or (II) to continue Executive as a participant
            in the Bonus Plans and Substitute Plans on at least the same basis
            as to potential amount of the bonus as Executive participated in
            prior to any change in such plans or awards, in accordance with the
            Bonus Plans and the Substitute Plans; (5) any material breach by the
            Company of any provision of this Agreement, including without
            limitation Section 10 hereof; or (6) failure of any successor to the
            Company (whether direct or indirect and whether by merger,
            acquisition, consolidation or otherwise) to assume in a writing
            delivered to Executive upon the assignee becoming such, the
            obligations of the Company hereunder.


                                  Page 5 of 19
<PAGE>   6


      (ii)  A Notice of Termination for Good Reason shall mean a notice that
            shall indicate the specific termination provision relied upon and
            shall set forth in reasonable detail the facts and circumstances
            claimed to provide a basis for Termination for Good Reason. The
            failure by Executive to set forth in the Notice of Termination for
            Good Reason any facts or circumstances which contribute to the
            showing of Good Reason shall not waive any right of Executive
            hereunder or preclude Executive from asserting such fact or
            circumstance in enforcing his rights hereunder. The Notice of
            Termination for Good Reason shall provide for a date of termination
            not less than ten (10) nor more than sixty (60) days after the date
            such Notice of Termination for Good Reason is given, provided that
            in the case of the events set forth in Sections 5(d)(i)(1) or (2)
            the date may be five (5) days after the giving of such notice.

(e)   TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
      Executive's employment hereunder without Cause at any time upon written
      notice to Executive.

(f)   EFFECT OF TERMINATION. Upon any termination of employment, Executive shall
      immediately resign from all Board memberships and other positions with the
      Company or any of its subsidiaries held by him at such time.

6.    COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.

In the event that Executive's employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:

(a)   TERMINATION BY REASON OF DEATH. In the event that Executive's employment
      is terminated by reason of Executive's death, the Company shall pay the
      following amounts to Executive's beneficiary or estate:

      (i)   Any accrued but unpaid Base Salary for services rendered to the date
            of death, any accrued but unpaid expenses required to be reimbursed
            under this Agreement, any vacation accrued to the date of
            termination, any earned but unpaid bonuses for any prior period,
            and, to the extent not otherwise paid, a pro-rata "bonus" or
            incentive compensation payment to the extent payments are awarded to
            senior executives of the Company and paid at the same time as senior
            executives are paid.

      (ii)  Any benefits to which Executive may be entitled pursuant to the
            plans, policies and arrangements (including those referred to in
            Section 4(d) hereof), as determined and paid in accordance with the
            terms of such plans, policies and arrangements.

      (iii) An amount equal to the Base Salary (at the rate in effect as of the
            date of Executive's death) which would have been payable to
            Executive if Executive had continued in employment for two
            additional years. Said payments will be paid to


                                  Page 6 of 19
<PAGE>   7


            Executive's estate or beneficiary at the same time and in the same
            manner as such compensation would have been paid if Executive had
            remained in active employment.

      (iv)  As of the date of termination by reason of Executive's death, stock
            options awarded to Executive shall be fully vested and Executive's
            estate or beneficiary shall have up to one (1) year from the date of
            death to exercise all such options, provided that in no event will
            any option be exercisable beyond its term.

      (v)   As otherwise specifically provided herein, including the retirement
            benefit to the extent payable to Executive's wife, Nancy Smith, if
            she survives Executive, for her life, pursuant to Section 4(h).

(b)   TERMINATION BY REASON OF TOTAL DISABILITY. In the event that Executive's
      employment is terminated by reason of Executive's Total Disability as
      determined in accordance with Section 5(b), the Company shall pay the
      following amounts to Executive:


      (i)   Any accrued but unpaid Base Salary for services rendered to the date
            of termination, any accrued but unpaid expenses required to be
            reimbursed under this Agreement, any vacation accrued to the date of
            termination and any earned but unpaid bonuses for any prior period.
            Executive shall also be eligible for a pro-rata bonus or incentive
            compensation payment to the extent such awards are made to senior
            executives of the Company for the year in which Executive is
            terminated, and to the extent not otherwise paid to the Executive.

      (ii)  Any benefits to which Executive may be entitled pursuant to the
            plans, policies and arrangements (including those referred to in
            Section 4(d) hereof) shall be determined and paid in accordance with
            the terms of such plans, policies and arrangements.

      (iii) An amount equal to the Base Salary (at the rate in effect as of the
            date of Executive's Total Disability) which would have been payable
            to Executive if Executive had continued in active employment for two
            years following termination of employment, less any payments under
            any long-term disability plan or arrangement paid for by the
            Company. Payment shall be made at the same time and in the same
            manner as such compensation would have been paid if Executive had
            remained in active employment until the end of such period.

      (iv)  As of the date of termination by reason of Executive's Total
            Disability, Executive shall be fully vested in all stock option
            awards and Executive shall have up to one (1) year from the date of
            termination by reason of Total Disability to exercise all such
            options; provided that in no event will any option be exercisable
            beyond its term.

      (v)   As otherwise specifically provided herein, including the retirement
            benefit to the extent payable pursuant to Section 4(h).


                                  Page 7 of 19
<PAGE>   8


(c)   TERMINATION FOR CAUSE. In the event that Executive's employment is
      terminated by the Company for Cause, the Company shall pay the following
      amounts to Executive:

      (i)   Any accrued but unpaid Base Salary for services rendered to the date
            of termination, any accrued but unpaid expenses required to be
            reimbursed under this Agreement, any vacation accrued to the date of
            termination and any earned but unpaid bonuses for any prior period.

      (ii)  Any benefits to which Executive may be entitled pursuant to the
            plans, policies and arrangements (including those referred to in
            Section 4(d) hereof up to the date of termination) shall be
            determined and paid in accordance with the terms of such plans,
            policies and arrangements.

      (iii) As otherwise specifically provided herein.

      Any options, restricted stock or other awards that have not vested prior
      to the date of such termination of employment shall be cancelled and any
      options held by Executive shall be cancelled, whether or not then vested.


(d)   VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
      voluntarily terminates employment other than for Good Reason, the Company
      shall pay the following amounts to Executive:

      (i)   Any accrued but unpaid Base Salary for services rendered to the date
            of termination, any accrued but unpaid expenses required to be
            reimbursed under this Agreement, any vacation accrued to the date of
            termination and any earned but unpaid bonuses for any prior period.

      (ii)  Any benefits to which Executive may be entitled pursuant to the
            plans, policies and arrangements (including those referred to in
            Section 4(d) hereof up to the date of termination) shall be
            determined and paid in accordance with the terms of such plans,
            policies and arrangements.

      (iii) In the event of such termination due to Executive's retirement
            following Executive's sixty-first (61st) birthday, Executive shall
            be entitled to the annual retirement benefit to the extent payable
            pursuant to Section 4(h).

      (iv)  As otherwise specifically provided herein.

      In the event of such termination prior to Executive's sixty-first (61st)
      birthday, any options, restricted stock or other awards that have not
      vested prior to the date of such termination of employment shall be
      cancelled and Executive shall have ninety (90) days following termination
      of employment to exercise any previously vested options; provided that in
      no event will any option be exercisable beyond its term. In the event of
      such termination due to Executive's retirement following Executive's
      sixty-first (61st)


                                  Page 8 of 19
<PAGE>   9


      birthday, any options, restricted stock or other awards that have not
      vested prior to the date of such termination of employment shall be
      cancelled and Executive shall have three (3) years following such
      termination of employment due to retirement to exercise any previously
      vested options; provided that in no event will any option be exercisable
      beyond its term.

(e)   TERMINATION BY THE COMPANY WITHOUT CAUSE; TERMINATION BY EXECUTIVE FOR
      GOOD REASON. In the event that Executive's employment is terminated by the
      Company for reasons other than death, Total Disability or Cause, or
      Executive terminates his employment for Good Reason, the Company shall pay
      the following amounts to Executive:

      (i)   Any accrued but unpaid Base Salary for services rendered to the date
            of termination, any accrued but unpaid expenses required to be
            reimbursed under this Agreement, any vacation accrued to the date of
            termination and any earned but unpaid bonuses for any prior period.

      (ii)  Any benefits to which Executive may be entitled pursuant to the
            plans, policies and arrangements referred to in Section 4(d) hereof
            shall be determined and paid in accordance with the terms of such
            plans, policies and arrangements.

      (iii) Base Salary (as then in effect) shall continue to be paid to
            Executive during the three (3) year period beginning on the date of
            Executive's termination and shall be paid at the same time, in the
            same amount (as in effect on the date of termination) and in the
            same manner as Base Salary would have been paid if Executive had
            remained in active employment until the end of such period.

      (iv)  The Company at its expense will continue for Executive and
            Executive's spouse and dependents, all health benefit plans,
            programs or arrangements, whether group or individual, and also
            including deferred compensation, disability, automobile, and other
            benefit plans, in which Executive was entitled to participate at any
            time during the twelve-month period prior to the date of
            termination, until the earliest to occur of (A) three years after
            the date of termination; (B) Executive's death (provided that
            benefits payable to Executive's beneficiaries shall not terminate
            upon Executive's death); or (C) with respect to any particular plan,
            program or arrangement, the date Executive becomes covered by a
            comparable benefit by a subsequent employer. In the event that
            Executive's continued participation in any such plan, program, or
            arrangement of the Company is prohibited, the Company will arrange
            to provide Executive with benefits substantially similar to those
            which Executive would have been entitled to receive under such plan,
            program, or arrangement, for such period on a basis which provides
            Executive with no additional after tax cost.

      (v)   Except to the extent prohibited by law, and except as otherwise
            provided herein, Executive will be 100% vested in all benefits,
            awards, and grants accrued but unpaid as of the date of termination
            under any pension plan, profit sharing plan, supplemental and/or
            incentive compensation plans in which Executive was a participant as
            of the date of termination.


                                  Page 9 of 19
<PAGE>   10


      (vi)  Executive shall continue to vest in all stock option awards or
            restricted stock awards over the three (3) year period commencing on
            the date of such termination. Executive shall have ninety (90) days
            following the expiration of such three (3) year period to exercise
            all options to the extent then vested, provided that in no event
            will any option be exercisable beyond its term.

      (vii) As otherwise specifically provided herein, including the retirement
            benefit to the extent payable pursuant to Section 4(h).

(f)   NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under this
      Agreement, under the terms of any incentive compensation, employee
      benefit, or fringe benefit plan applicable to Executive at the time of
      Executive's termination or resignation of employment, Executive shall have
      no right to receive any other compensation, or to participate in any other
      plan, arrangement or benefit, with respect to future periods after such
      termination or resignation.

(g)   NO MITIGATION; NO SET-OFF. In the event of any termination of employment
      hereunder, Executive shall be under no obligation to seek other employment
      and there shall be no offset against any amounts due Executive under this
      Agreement on account of any remuneration attributable to any subsequent
      employment that Executive may obtain. The amounts payable hereunder shall
      not be subject to setoff, counterclaim, recoupment, defense or other right
      which the Company may have against the Executive or others, except upon
      obtaining by the Company of a final unappealable judgment against
      Executive.

7.    RESIGNATION BY EXECUTIVE FOR GOOD REASON AND COMPENSATION PAYABLE
      FOLLOWING CHANGE IN CONTROL.

(a)   RESIGNATION FOR GOOD REASON FOLLOWING CHANGE IN CONTROL. In the event a
      "Change in Control" occurs and Executive terminates his employment for
      Good Reason thereafter, or the Company terminates Executive's employment
      other than for Cause or such termination for Good Reason or without Cause
      occurs in contemplation of such Change in Control (any termination within
      six (6) months prior to such Change in Control being presumed to be in
      contemplation unless rebutted by clear and demonstrable evidence to the
      contrary), the Company shall pay the following amounts to Executive:

      (i)   The payments and benefits provided for in Section 6(e), except that
            the severance amount pursuant to Section 6(e)(iii) will be paid in a
            lump-sum.

      (ii)  Executive will be 100% vested in all benefits, awards, and grants
            (including stock option grants and stock awards, all of such stock
            options exercisable for three (3) years following Termination,
            provided that in no event will any option be exercisable beyond its
            term) accrued but unpaid as of the date of termination under any
            non-qualified pension plan, supplemental and/or incentive
            compensation or bonus plans, in which Executive was a participant as
            of the date


                                 Page 10 of 19
<PAGE>   11


            of termination. Executive shall also receive a bonus or incentive
            compensation payment (the "bonus payment"), payable at 100% of the
            maximum bonus available to Executive, pro-rated as of the effective
            date of the termination. The bonus payment shall be payable within
            five (5) days after the effective date of Employee's termination.
            Except as may be provided under this Section 7 or under the terms of
            any incentive compensation, employee benefit, or fringe benefit plan
            applicable to Executive at the time of Executive's resignation from
            employment, Executive shall have no right to receive any other
            compensation, or to participate in any other plan, arrangement or
            benefit, with respect to future periods after such resignation or
            termination.

(b)   CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

      (i)   In the event that the Executive shall become entitled to payments
            and/or benefits provided by this Agreement or any other amounts in
            the "nature of compensation" (whether pursuant to the terms of this
            Agreement or any other plan, arrangement or agreement with the
            Company, any person whose actions result in a change of ownership or
            effective control covered by Section 280G(b)(2) of the Code or any
            person affiliated with the Company or such person) as a result of
            such change in ownership or effective control (collectively the
            "Company Payments"), and such Company Payments will be subject to
            the tax (the "Excise Tax") imposed by Section 4999 of the Code (and
            any similar tax that may hereafter be imposed by any taxing
            authority) the Company shall pay to the Executive at the time
            specified in subsection (iv) below an additional amount (the
            "Gross-up Payment") such that the net amount retained by the
            Executive, after deduction of any Excise Tax on the Company Payments
            and any U.S. federal, state, and for local income or payroll tax
            upon the Gross-up Payment provided for by this Section 7(b), but
            before deduction for any U.S. federal, state, and local income or
            payroll tax on the Company Payments, shall be equal to the Company
            Payments.

      (ii)  For purposes of determining whether any of the Company Payments and
            Gross-up Payments (collectively the "Total Payments") will be
            subject to the Excise Tax and the amount of such Excise Tax, (x) the
            Total Payments shall be treated as "parachute payments" within the
            meaning of Section 280G(b)(2) of the Code, and all "parachute
            payments" in excess of the "base amount" (as defined under Code
            Section 280G[b][3] of the Code) shall be treated as subject to the
            Excise Tax, unless and except to the extent that, in the opinion of
            the Company's independent certified public accountants appointed
            prior to any change in ownership (as defined under Code Section
            280G[b][2]) or tax counsel selected by such accountants (the
            "Accountants") such Total Payments (in whole or in part) either do
            not constitute "parachute payments," represent reasonable
            compensation for services actually rendered within the meaning of
            Section 280G(b)(4) of the Code in excess of the "base amount" or are
            otherwise not subject to the Excise Tax, and (y) the value of any
            non-cash benefits or any deferred payment or benefit shall be
            determined by the Accountants in accordance with the principles of
            Section 280G of the Code.


                                 Page 11 of 19
<PAGE>   12


      (iii) For purposes of determining the amount of the Gross-up Payment, the
            Executive shall be deemed to pay U.S. federal income taxes at the
            highest marginal rate of U.S. federal income taxation in the
            calendar year in which the Gross-up Payment is to be made and state
            and local income taxes at the highest marginal rate of taxation in
            the state and locality of the Executive's residence for the calendar
            year in which the Company Payment is to be made, net of the maximum
            reduction in U.S. federal income taxes which could be obtained from
            deduction of such state and local taxes if paid in such year. In the
            event that the Excise Tax is subsequently determined by the
            Accountants to be less than the amount taken into account hereunder
            at the time the Gross-up Payment is made, the Executive shall repay
            to the Company, at the time that the amount of such reduction in
            Excise Tax is finally determined, the portion of the prior Gross-up
            Payment attributable to such reduction (plus the portion of the
            Gross-up Payment attributable to the Excise Tax and U.S. federal,
            state and local income tax imposed on the portion of the Gross-up
            Payment being repaid by the Executive if such repayment results in a
            reduction in Excise Tax or a U.S. federal, state and local income
            tax deduction), plus interest on the amount of such repayment at the
            rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding
            the foregoing, in the event any portion of the Gross-up Payment to
            be refunded to the Company has been paid to any U.S. federal, state
            and local tax authority, repayment thereof (and related amounts)
            shall not be required until actual refund or credit of such portion
            has been made to the Executive, and interest payable to the Company
            shall not exceed the interest received or credited to the Executive
            by such tax authority for the period it held such portion. The
            Executive and the Company shall mutually agree upon the course of
            action to be pursued (and the method of allocating the expense
            thereof) if the Executive's claim for refund or credit is denied.

            In the event that the Excise Tax is later determined by the
            Accountant or the Internal Revenue Service to exceed the amount
            taken into account hereunder at the time the Gross-up Payment is
            made (including by reason of any payment the existence or amount of
            which cannot be determined at the time of the Gross-up Payment), the
            Company shall make an additional Gross-up Payment in respect of such
            excess (plus any interest or penalties payable with respect to such
            excess) at the time that the amount of such excess is finally
            determined.

      (iv)  The Gross-up Payment or portion thereof provided for in subsection
            (iii) above shall be paid not later than the thirtieth (30th) day
            following an event occurring which subjects the Executive to the
            Excise Tax; provided, however, that if the amount of such Gross-up
            Payment or portion thereof cannot be finally determined on or before
            such day, the Company shall pay to the Executive on such day an
            estimate, as determined in good faith by the Accountant, of the
            minimum amount of such payments and shall pay the remainder of such
            payments (together with interest at the rate provided in Section
            1274(b)(2)(B) of the Code), subject to further payments pursuant to
            subsection (iii) hereof, as soon as the amount thereof can
            reasonably be determined, but in no event later than the ninetieth
            day after the occurrence of the event subjecting the Executive to
            the Excise Tax. In the event that the amount of the estimated
            payments exceeds the amount subsequently


                                 Page 12 of 19
<PAGE>   13


            determined to have been due, such excess shall constitute a loan by
            the Company to the Executive, payable on the fifth day after demand
            by the Company (together with interest at the rate provided in
            Section 1274(b)(2)(B) of the Code).

      (v)   In the event of any controversy with the Internal Revenue Service
            (or other taxing authority) with regard to the Excise Tax, the
            Executive shall permit the Company to control issues related to the
            Excise Tax (at its expense), provided that such issues do not
            potentially materially adversely affect the Executive, but the
            Executive shall control any other issues. In the event the issues
            are interrelated, the Executive and the Company shall in good faith
            cooperate so as not to jeopardize resolution of either issue, but if
            the parties cannot agree the Executive shall make the final
            determination with regard to the issues. In the event of any
            conference with any taxing authority as to the Excise Tax or
            associated income taxes, the Executive shall permit the
            representative of the Company to accompany the Executive, and the
            Executive and the Executive's representative shall cooperate with
            the Company and its representative.

      (vi)  The Company shall be responsible for all charges of the Accountant.

      (vii) The Company and the Executive shall promptly deliver to each other
            copies of any written communications, and summaries of any verbal
            communications, with any taxing authority regarding the Excise Tax
            covered by this Section 7(b).

(c)   CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
      means the occurrence of any of the following events:

      (i)   any Person is or becomes the Beneficial Owner, directly or
            indirectly, of securities of the Company (not including in the
            securities beneficially owned by such person any securities acquired
            directly from the Company or its Affiliates) representing
            twenty-five percent (25%) or more of the combined voting power of
            the Company's then outstanding voting securities;

      (ii)  the following individuals cease for any reason to constitute a
            majority of the number of directors then serving: individuals who,
            on the Commencement Date, constitute the Board and any new director
            (other than a director whose initial assumption of office is in
            connection with an actual or threatened election contest, including
            but not limited to a consent solicitation, relating to the election
            of directors of the Company) whose appointment or election by the
            Board or nomination for election by the Company's stockholders was
            approved or recommended by a vote of the at least two-thirds
            (2/3rds) of the directors then still in office who either were
            directors on the Commencement Date or whose appointment, election or
            nomination for election was previously so approved or recommended;

      (iii) there is a consummated merger or consolidation of the Company or any
            direct or indirect subsidiary of the Company with any other
            corporation, other than (A) a merger or consolidation which would
            result in the voting securities of the


                                 Page 13 of 19
<PAGE>   14


            Company outstanding immediately prior thereto continuing to
            represent (either by remaining outstanding or by being converted
            into voting securities of the surviving or parent entity) more than
            fifty percent (50%) of the combined voting power of the voting
            securities of the Company or such surviving or parent equity
            outstanding immediately after such merger or consolidation or (B) a
            merger or consolidation effected to implement a recapitalization of
            the Company (or similar transaction) in which no Person, directly or
            indirectly, acquired twenty-five percent (25%) or more of the
            combined voting power of the Company's then outstanding securities
            (not including in the securities beneficially owned by such person
            any securities acquired directly from the Company or its
            Affiliates); or

      (iv)  the stock holders of the Company approve a plan of complete
            liquidation of the Company or there is consummated an agreement for
            the sale or disposition by the Company of all or substantially all
            of the Company's assets (or any transaction having a similar
            effect), other than a sale or disposition by the Company of all or
            substantially all of the Company's assets to an entity, at least
            fifty percent (50%) of the combined voting power of the voting
            securities of which are owned by stockholders of the Company in
            substantially the same proportions as their ownership of the Company
            immediately prior to such sale.

      For purposes of this Section 7(c), the following terms shall have the
      following meanings:

      (i)   "Affiliate" shall mean an affiliate of the Company, as defined in
            Rule 12b-2 promulgated under Section 12 of the Securities Exchange
            Act of 1934, as amended from time to time (the "Exchange Act");

      (ii)  "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
            under the Exchange Act;

      (iii) "Person" shall have the meaning set forth in Section 3(a)(9) of the
            Exchange Act, as modified and used in Sections 13(d) and 14(d)
            thereof, except that such term shall not include (1) the Company,
            (2) a trustee or other fiduciary holding securities under an
            employee benefit plan of the Company, (3) an underwriter temporarily
            holding securities pursuant to an offering of such securities or (4)
            a corporation owned, directly or indirectly, by the stockholders of
            the Company in substantially the same proportions as their ownership
            of shares of Common Stock of the Company.

8.    RESTRICTIVE COVENANTS.

(a)   COMPETITIVE ACTIVITY. Executive covenants and agrees that at all times
      during Executive's period of employment with the Company, and for two (2)
      years thereafter, Executive will not engage in, assist, or have any active
      interest or involvement, whether as an employee, agent, consultant,
      creditor, advisor, officer, director, stockholder (excluding holding of
      less than 3% of the stock of a public company), partner, proprietor or any
      type of principal whatsoever in any person, firm, or business entity
      which, directly or indirectly, is materially engaged in the waste
      management business competitive with


                                 Page 14 of 19
<PAGE>   15


      that conducted and carried on by the Company, without the Company's
      specific written consent to do so. "Material" shall mean more than five
      (5%) percent of their revenue is generated from the waste management
      business; provided that the revenues within Executive's area of
      responsibility or authority are more than 10% composed of revenues from
      the waste disposal business.

(b)   NON-SOLICITATION. Executive covenants and agrees that at all times during
      Executive's period of employment with the Company, and for a period of two
      (2) years after the Termination thereof, whether such termination is
      voluntary or involuntary by wrongful discharge, or otherwise, Executive
      will not directly and personally knowingly (i) induce any customers of the
      Company or corporations affiliated with the Company to patronize any
      similar business which competes with any material business of the Company;
      (ii) after his termination of employment, request or advise any customers
      of the Company or corporations affiliated with the Company to withdraw,
      curtail or cancel such customer's business with the Company; or (iii)
      after his termination of employment, individually or through any person,
      firm, association or corporation with which he is now, or may hereafter
      become associated, solicit, entice or induce any then employee of the
      Company, or any subsidiary of the Company, to leave the employ of the
      Company, or such other corporation, to accept employment with, or
      compensation from the Executive, or any person, firm, association or
      corporation with which Executive is affiliated without prior written
      consent of the Company. The foregoing shall not prevent Executive from
      serving as a reference for employees.

(c)   PROTECTED INFORMATION. Executive recognizes and acknowledges that
      Executive has had and will continue to have access to various confidential
      or proprietary information concerning the Company and corporations
      affiliated with the Company of a special and unique value which may
      include, without limitation, (i) books and records relating to operation,
      finance, accounting, sales, personnel and management, (ii) policies and
      matters relating particularly to operations such as customer service
      requirements, costs of providing service and equipment, operating costs
      and pricing matters, and (iii) various trade or business secrets,
      including customer lists, route sheets, business opportunities, marketing
      or business diversification plans, business development and bidding
      techniques, methods and processes, management information systems,
      financial data and the like, to the extent not generally known in the
      industry (collectively, the "Protected Information"). Executive therefore
      covenants and agrees that Executive will not at any time, either while
      employed by the Company or afterwards, knowingly make any independent use
      of, or knowingly disclose to any other person or organization (except as
      authorized by the Company) any of the Protected Information, provided that
      (i) while employed by the Company, Executive may in good faith make
      disclosures he believes desirable, provided that are authorized by the
      Company or otherwise in accordance with Company policy, and (ii) Executive
      may comply with legal process.

9.    ENFORCEMENT OF COVENANTS.

(a)   RIGHT TO INJUNCTION. Executive acknowledges that a breach of the covenants
      set forth in Section 8 hereof will cause irreparable damage to the Company
      with respect to which the Company's remedy at law for damages may be
      inadequate. Therefore, in the event of


                                 Page 15 of 19
<PAGE>   16


      breach or threatened breach of the covenants set forth in this section by
      Executive, Executive and the Company agree that the Company shall be
      entitled to the following particular forms of relief, in addition to
      remedies otherwise available to it at law or equity; injunctions, both
      preliminary and permanent, enjoining or restraining such breach or
      threatened breach and Executive hereby consents to the issuance thereof
      forthwith and without bond by any court of competent jurisdiction.

(b)   SEPARABILITY OF COVENANTS. The covenants contained in Section 8 hereof
      constitute a series of separate covenants, one for each applicable State
      in the United States and the District of Columbia, and one for each
      applicable foreign country. If in any judicial proceeding, a court shall
      hold that any of the covenants set forth in Section 8 exceed the time,
      geographic, or occupational limitations permitted by applicable laws,
      Executive and the Company agree that such provisions shall and are hereby
      reformed to the maximum time, geographic, or occupational limitations
      permitted by such laws. Further, in the event a court shall hold
      unenforceable any of the separate covenants deemed included herein, then
      such unenforceable covenant or covenants shall be deemed eliminated from
      the provisions of this Agreement for the purpose of such proceeding to the
      extent necessary to permit the remaining separate covenants to be enforced
      in such proceeding.

      Executive and the Company further agree that the covenants in Section 8
      shall each be construed as a separate agreement independent of any other
      provisions of this Agreement, and the existence of any claim or cause of
      action by Executive against the Company whether predicated on this
      Agreement or otherwise, shall not constitute a defense to the enforcement
      by the Company of any of the covenants of Section 8.

10.   INDEMNIFICATION.

The Company shall indemnify and hold harmless Executive to the fullest extent
permitted by Delaware law for any action or inaction of Executive while serving
as an officer and director of the Company or, at the Company's request, as an
officer or director of any other entity or as a fiduciary of any benefit plan.
This provision includes the obligation and undertaking of the Executive to
reimburse the Company for any fees advanced by the Company on behalf of the
Executive should it later be determined that Executive was not entitled to have
such fees advanced by the Company under Delaware law. The Company shall cover
the Executive under directors and officers liability insurance both during and,
while potential liability exists, after the Employment Term in the same amount
and to the same extent as the Company covers its other officers and directors.

11.   DISPUTES AND PAYMENT OF ATTORNEY'S FEES.

If at any time during the term of this Agreement or afterwards there should
arise any dispute as to the validity, interpretation or application of any term
or condition of this Agreement, the Company agrees, upon written demand by
Executive (and Executive shall be entitled upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction, without the
necessity of posting any bond with respect thereto, compelling the Company) to
promptly provide sums sufficient to pay on a current basis (either directly or
by reimbursing Executive) Executive's costs and reasonable attorney's fees
(including expenses of investigation and


                                 Page 16 of 19
<PAGE>   17


disbursements for the fees and expenses of experts, etc.) incurred by Executive
in connection with any such dispute or any litigation, provided that Executive
shall repay any such amounts paid or advanced if Executive is not the prevailing
party with respect to at least one material claim or issue in such dispute or
litigation. The provisions of this Section 11, without implication as to any
other section hereof, shall survive the expiration or termination of this
Agreement and of Executive's employment hereunder.

12.   WITHHOLDING OF TAXES.

The Company may withhold from any compensation and benefits payable under this
Agreement all applicable federal, state, local, or other taxes.


13.   SOURCE OF PAYMENTS.

All payments provided under this Agreement, other than payments made pursuant to
a plan which provides otherwise, shall be paid from the general funds of the
Company, and no special or separate fund shall be established, and no other
segregation of assets made, to assure payment. Executive shall have no right,
title or interest whatever in or to any investments which the Company may make
to aid the Company in meeting its obligations hereunder. To the extent that any
person acquires a right to receive payments from the Company hereunder, such
right shall be no greater than the right of an unsecured creditor of the
Company.

14.   ASSIGNMENT.

Except as otherwise provided in this Agreement, this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, representatives, successors and assigns. This Agreement shall not be
assignable by Executive (but any payments due hereunder which would be payable
at a time after Executive's death shall be paid to Executive's designated
beneficiary or, if none, his estate) and shall be assignable by the Company only
to any financially solvent corporation or other entity resulting from the
reorganization, merger or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange or transfer
in a writing delivered to Executive in a form reasonably acceptable to Executive
(the provisions of this sentence also being applicable to any successive such
transaction).

15.   ENTIRE AGREEMENT; AMENDMENT.

This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company or any of its
subsidiaries or affiliated entities relating to the terms of Executive's
employment by the Company, including without limitation, that certain offer
letter dated November 18, 1999 by and between Executive and the Company. It may
not be amended except by a written agreement signed by both parties.


                                 Page 17 of 19
<PAGE>   18


16.   GOVERNING LAW.

This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas applicable to agreements made and to be performed in that
State, without regard to its conflict of laws provisions.

17.   REQUIREMENT OF TIMELY PAYMENTS.

If any amounts which are required, or determined to be paid or payable, or
reimbursed or reimbursable, to Executive under this Agreement (or any other
plan, agreement, policy or arrangement with the Company) are not so paid
promptly at the times provided herein or therein, such amounts shall accrue
interest, compounded daily, at an 8% annual percentage rate, from the date such
amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon
are finally and fully paid, provided, however, that in no event shall the amount
of interest contracted for, charged or received hereunder, exceed the maximum
non-usurious amount of interest allowed by applicable law.

18.   NOTICES.

Any notice, consent, request or other communication made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by registered or certified mail, return receipt
requested, or by facsimile or by hand delivery, to those listed below at their
following respective addresses or at such other address as each may specify by
notice to the others:

              To the Company:    Waste Management, Inc.
                                 1001 Fannin, Suite 4000
                                 Houston, Texas 77002
                                 Attention: Corporate Secretary

              To Executive:      At the address for Executive set forth below.

19.   MISCELLANEOUS.

(a)   WAIVER. The failure of a party to insist upon strict adherence to any term
      of this Agreement on any occasion shall not be considered a waiver thereof
      or deprive that party of the right thereafter to insist upon strict
      adherence to that term or any other term of this Agreement.

(b)   SEPARABILITY. Subject to Section 9 hereof, if any term or provision of
      this Agreement is declared illegal or unenforceable by any court of
      competent jurisdiction and cannot be modified to be enforceable, such term
      or provision shall immediately become null and void, leaving the remainder
      of this Agreement in full force and effect.

(c)   HEADINGS. Section headings are used herein for convenience of reference
      only and shall not affect the meaning of any provision of this Agreement.


                                 Page 18 of 19
<PAGE>   19


(d)   RULES OF CONSTRUCTION. Whenever the context so requires, the use of the
      singular shall be deemed to include the plural and vice versa.

(e)   COUNTERPARTS. This Agreement may be executed in any number of
      counterparts, each of which so executed shall be deemed to be an original,
      and such counterparts will together constitute but one Agreement.




IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.


WASTE MANAGEMENT, INC.


By:/s/ A. Maurice Myers
   ------------------------------------
Name:  A. Maurice Myers
Title: Chairman, Chief Executive Officer and President

Date: April 14, 2000
      ---------------------------------


EXECUTIVE

/s/ Thomas L. Smith
---------------------------------------
THOMAS L. SMITH

Date: April 11, 2000
      ---------------------------------
Address:
        -------------------------------

---------------------------------------


                                 Page 19 of 19