Terms that carry the most weight
Salary and bonus targets usually get the attention, but the provisions that matter most in an executive compensation agreement often concern leaving. How the agreement defines cause and good reason determines whether severance is paid, and small wording differences can decide a large dispute. Equity terms, including vesting, acceleration on a change in control, and treatment on termination, frequently reside in a separate plan and award agreement that should be read alongside the employment terms. Clawback policies, particularly at listed companies, can reach incentive pay after the fact, and the agreement should acknowledge them accurately.
Tax rules that shape the drafting
Severance and bonus timing language has to respect federal deferred compensation tax rules, which are strict about when elections are made and payments occur, and a drafting mistake can shift significant tax and penalties onto the executive. Separate federal rules can impose an excise tax on certain payments tied to a change in control and deny the company a deduction, which leads to negotiated approaches such as reducing payments below the threshold or comparing after-tax outcomes. Release requirements for severance also need to be timed correctly to avoid tax issues. These points should be reviewed with tax advisers before signing, because fixing them later can be difficult or impossible.
Restrictive covenants and negotiation
Noncompete, nonsolicitation, and confidentiality covenants are standard in many executive agreements, but their enforceability depends on state law, which has been changing. New York courts generally require that a noncompete be reasonable and protect a legitimate interest, and proposals to restrict noncompetes have been actively debated. Whether you represent the company or the executive, bring the offer letter, plan documents, award agreements, and any prior agreements with restrictive covenants. We review how the pieces fit together and where the language leaves room for disagreement later. Executives should also confirm whether the company will contribute toward their own legal fees for the negotiation, which is a common request.
