Toolkit · Labor and Employment

The Employment Agreement and Executive Pay Toolkit

26 U.S.C. § 409

Type
Toolkit
Jurisdiction
National
Date
2025-06-25
Topic
Labor and Employment

This toolkit contains the drafting language and worksheets that decide employment agreement negotiations. It supplies a document request list, a counteroffer email that consolidates every ask, and model language for cause, good reason, severance, change-of-control acceleration, and restrictive covenant carve-outs. It contains an equity math worksheet that converts a grant into the number that actually matters, an 83(b) election letter with filing instructions, and a separation scenario matrix. It supplies an indemnification and insurance checklist for officers, a separation agreement review sheet, and an exercise-window extension request. Each item notes the failure it prevents. All should be adapted to the governing law and to the specific plan documents, and none substitutes for counsel at or above the director level.

The Employment Agreement and Executive Pay Toolkit

Labor and Employment > Employment Agreements and Executive Pay | Published 25 June 2025 - Updated 13 June 2026 | UpLaw - uplaw.us

What Is In This Toolkit

Fifteen documents. Use them with the checklist for sequence, the guide for the governing rules, and the article for orientation.

⚠️ Timing beats drafting. Every provision here is available before you accept and nearly none of it afterward.

Tool 1 — Document Request

Send this before responding to any term.

"Thank you — I am excited about the role. Before I respond on terms, could you send the complete set of documents so I can review them together?

  1. The offer letter and any employment agreement
  2. The equity incentive plan
  3. The form of grant notice and award agreement
  4. The confidentiality, invention assignment, and restrictive covenant agreement
  5. The bonus or commission plan
  6. The employee handbook
  7. For the equity grant: the number of shares, the exercise price and its valuation date, and the fully diluted share count I expect to come back with a short consolidated list rather than a series of questions."

Tool 2 — Counteroffer Email

One message. Prioritized. Not a negotiation by installment.

"Thanks for the package — I have reviewed everything and I am ready to accept. I have four items I would like to resolve and two I would appreciate but do not require.

Required

  1. Severance. Six months of base salary plus a pro-rated bonus and six months of health coverage on a termination without cause or a resignation for good reason.
  2. Good reason. A definition covering material reduction in duties, title, reporting line, or base compensation, and relocation beyond 35 miles, with 30 days' notice and a cure period.
  3. Cause. Limited to conviction of a felony or a crime of dishonesty, willful and material breach of the agreement or policy, and material failure to perform after written notice and a 30-day cure period.
  4. Exercise window. Extension of the post-termination exercise period from 90 days to [five/seven] years for vested options.

Appreciated 5. Removal of the requirement that I be employed on the bonus payment date, for a termination without cause. 6. Twelve months' acceleration of unvested equity on a termination without cause within twelve months following a change of control.

I am happy to discuss any of these. Everything else in the package works for me, and I can start on [date]."

⭐ Items 1 through 4 cost the employer nothing in the base case. Item 4 in particular has no budget line.

Tool 3 — Cause Definition (Employee-Protective)

"'Cause' means only: (i) the Executive's conviction of, or plea of guilty or nolo contendere to, a felony or a crime involving fraud or dishonesty; (ii) the Executive's willful and material breach of a material provision of this Agreement or of a written Company policy, which breach, if curable, is not cured within thirty (30) days after written notice from the Board specifying the breach in reasonable detail; (iii) the Executive's willful misconduct or gross negligence that causes material injury to the Company; or (iv) the Executive's willful and continued failure to perform the material duties of the position after written notice from the Board specifying such failure in reasonable detail and a thirty (30) day opportunity to cure.

No act or omission shall be deemed 'willful' if taken or omitted in good faith and in the reasonable belief that it was in, or not opposed to, the best interests of the Company, or in reliance on advice of counsel. A termination for Cause shall be effective only upon a resolution adopted by a majority of the Board at a meeting for which the Executive received at least ten (10) days' notice and at which the Executive had an opportunity, with counsel, to be heard."

Tool 4 — Good Reason Definition

Drafted to fall within the involuntary-separation safe harbor under 26 U.S.C. § 409A.

"'Good Reason' means the occurrence, without the Executive's written consent, of: (i) a material diminution in the Executive's base compensation or target bonus opportunity, other than a reduction of no more than ten percent applied proportionately to all similarly situated executives; (ii) a material diminution in the Executive's authority, duties, or responsibilities, including a change in the position to which the Executive reports; (iii) a relocation of the Executive's principal work location by more than thirty-five (35) miles; or (iv) any other action constituting a material breach of this Agreement by the Company.

The Executive must provide written notice of the condition within ninety (90) days of its initial existence; the Company shall have thirty (30) days to cure; and if not cured, the Executive must terminate employment within sixty (60) days following the end of the cure period. For the avoidance of doubt, none of the foregoing shall be excluded by reason of the Company becoming a subsidiary of, or being integrated with, another entity."

Tool 5 — Severance Provision

"Termination Without Cause or for Good Reason. If the Company terminates the Executive's employment without Cause or the Executive resigns for Good Reason, then, subject to the Executive's execution and non-revocation of the release attached as Exhibit A, the Company shall provide: (a) continued payment of base salary for [twelve (12)] months in accordance with normal payroll practices; (b) a pro-rated annual bonus for the year of termination, based on actual performance, paid when bonuses are paid to other executives; (c) payment or reimbursement of the premium for continued group health coverage for [twelve (12)] months; and (d) [twelve (12)] months' accelerated vesting of outstanding time-based equity awards and extension of the post-termination exercise period for all vested options to [__].

Timing. Payments under (a) shall begin on the sixtieth (60th) day following the Separation from Service, with the first payment including amounts otherwise payable during that period, provided the release has become effective. This timing is intended to comply with 26 U.S.C. § 409A, and the parties agree the Executive shall have no ability to influence the taxable year of payment.

Change of Control. If such termination occurs within [eighteen (18)] months following a Change of Control, the multiple in (a) shall be [1.5x] base salary plus target bonus, and clause (d) shall provide for full acceleration.

Section 280G. If any payment would constitute an 'excess parachute payment' under 26 U.S.C. § 280G, payments shall be reduced to the greatest amount that would not trigger the excise tax, but only if such reduction results in a greater after-tax amount to the Executive. The determination shall be made by an independent accounting firm at the Company's expense."

Tool 6 — Equity Math Worksheet

The number that matters is not the number of shares.

Question Answer
Award type (ISO / NSO / restricted stock / RSU)
Number of shares
Fully diluted shares outstanding (including option pool)
Your percentage (shares ÷ fully diluted)
Exercise price
Most recent valuation (409A or preferred price) and date
Vesting: cliff, schedule, commencement date
Vested at 12 / 24 / 36 / 48 months
Cost to exercise all vested at 12 / 24 / 36 / 48 months
Spread at exercise (value − strike), and tax on it
Post-termination exercise window
Liquidation preference ahead of common (total $ and participation)
Exit value at which common receives anything
RSU only: is a liquidity event required to vest?
Change of control: single or double trigger; % accelerated
Repurchase right on departure? Price?

⭐ Complete rows for "cost to exercise" and "preference ahead of common" before accepting an offer where equity is a material part of the compensation. Those two rows convert a headline number into a decision.

Tool 7 — 83(b) Election Letter

Deadline: 30 days from the date of transfer. Irrevocable. No extensions. No exceptions.

"ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE

The undersigned taxpayer hereby elects, pursuant to 26 U.S.C. § 83(b), to include in gross income the excess of the fair market value of the property described below over the amount paid for it.

  1. Taxpayer: [name, address, taxpayer identification number].
  2. Property: [number] shares of common stock of [Company], a [state] corporation.
  3. Date of transfer: [date]. Taxable year: [year].
  4. Nature of restrictions: the shares are subject to forfeiture and to repurchase at cost if the taxpayer's service terminates before vesting under a [four]-year schedule with a [one]-year cliff.
  5. Fair market value at transfer, determined without regard to lapse restrictions: $[] per share; $[] total.
  6. Amount paid: $[] per share; $[] total.
  7. Amount to include in gross income: $[__].
  8. The undersigned has furnished a copy of this election to the person for whom the services are performed.

[Signature, date]"

Filing: send to the Internal Revenue Service office where you file your return, within 30 days of transfer, by a method that produces proof of mailing. Provide a copy to the company. Keep the proof permanently.

Tool 8 — Restrictive Covenant Redlines

Model language to propose in place of common overbroad clauses.

Non-compete narrowing. "...shall not, for a period of [twelve (12)] months following termination, engage in the business of [specific products/services on which Executive worked] within [defined territory], provided that this restriction shall not apply if the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, and shall not prohibit employment with a diversified entity in a business unit that does not compete with the Company."

Customer non-solicit. "...shall not solicit, for the purpose of providing competing products or services, any customer with whom the Executive had material contact during the last twelve (12) months of employment. General advertising not targeted at such customers shall not constitute solicitation."

Employee non-solicit. "...shall not solicit for employment any employee with whom the Executive worked during the last twelve (12) months, provided that responding to a general advertisement or an unsolicited inquiry shall not constitute solicitation."

Confidentiality carve-outs. "Confidential Information does not include information that (a) is or becomes public other than by breach of this Agreement; (b) was known to the Executive before disclosure; (c) is independently developed without use of Confidential Information; (d) is lawfully received from a third party; or (e) is required to be disclosed by law, provided the Executive gives notice where legally permitted."

Statutory immunity notice (required to preserve exemplary damages and fees under 18 U.S.C. § 1836). "Notwithstanding anything herein, the Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret made in confidence to a federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or made in a complaint or other document filed under seal in a lawsuit."

Protected rights. "Nothing in this Agreement limits the Executive's right to file a charge with, communicate with, or participate in an investigation by the Equal Employment Opportunity Commission, the Securities and Exchange Commission under 15 U.S.C. § 78u-6, the National Labor Relations Board under 29 U.S.C. § 157, or any other government agency, or to receive an award for information provided to any such agency."

Inventions. "This assignment does not apply to any invention that the Executive developed entirely on the Executive's own time without using the Company's equipment, supplies, facilities, or trade secret information, except for inventions that relate to the Company's business or actual or demonstrably anticipated research or development, or that result from work performed for the Company. Prior inventions are listed on Schedule 1."

Tool 9 — Exercise Window Extension Request

"One item on the equity grant: the plan provides a 90-day post-termination exercise period. I would like to request an extension to [five/seven/ten] years for vested options.

The reason is practical rather than a matter of value: if I leave before a liquidity event, a 90-day window requires me to fund the exercise price and the tax on the spread in cash, for shares I cannot sell. Many people in that position forfeit options they earned. An extended window costs the company nothing today and does not change the number of shares.

I understand that for incentive stock options an extension beyond three months converts them to nonqualified options, and I accept that consequence."

Tool 10 — Indemnification and Insurance Checklist for Officers

☐ Indemnification to the fullest extent permitted by the law of the state of incorporation ☐ Advancement of expenses as incurred, on an undertaking to repay ☐ A standalone indemnification agreement, not reliance on bylaws ☐ Company as indemnitor of first resort, ahead of any personal or investor policy ☐ Coverage for service at the request of the company on other boards ☐ Partial indemnification where only some claims are indemnifiable ☐ Selection of counsel and a mechanism where the company declines to defend ☐ D&O policy limits, retention, and whether defense erodes limits ☐ Side A coverage for individuals where the company cannot indemnify ☐ Insured-versus-insured exclusion scope ☐ Priority of payments in favor of individuals when limits are inadequate ☐ Tail coverage on departure and on a change of control, and who buys it ☐ Notice obligations and who reports a claim ☐ Annual confirmation that the policy is in force and the limits are adequate

See the liability coverage guide and the tender checklist.

Tool 11 — Separation Agreement Review Sheet

Item Offered Already owed under the agreement? Ask
Cash severance
Pro-rated bonus
Health coverage
Equity acceleration
Exercise window extension
Consideration period (21 / 45 days)
Revocation period (7 days)
Group program disclosure (titles and ages)
Release limited to accrued claims
Carve-outs: vested benefits, indemnification, non-waivable claims
Agency communication rights preserved
Payment date fixed (not tied to signing)
Mutual non-disparagement
Agreed reference language
Non-compete released or narrowed
Characterization of departure
Return of property; personal files and contacts
Cooperation obligations and whether paid

⚠️ Column three is the one people skip. If the employment agreement already requires the payment, the release is being purchased with your own money.

Tool 12 — Offer Letter Skeleton (Employer)

[Date] — [Candidate]

Position and reporting. [Title], reporting to [title]. Start date [date]. Location []; [remote/hybrid arrangement]. Compensation. Base salary $[], payable in accordance with normal payroll practices. Target annual bonus of []% of base, based on [metrics], paid by [date], [pro-rated for the first year]; [state the treatment on a termination without cause]. Equity. Subject to Board approval, a grant of [] [options/RSUs] under the [Plan], vesting over four years with a one-year cliff. The Plan and award agreement govern; copies are enclosed. Benefits. [Summary and effective date.] Severance. [Cross-reference the employment agreement, or state the arrangement.] Conditions. This offer is contingent on [background check consistent with 15 U.S.C. § 1681b and § 1681m], on verification of employment eligibility under 8 U.S.C. § 1324a, and on execution of the enclosed confidentiality and invention assignment agreement. At-will. Employment is at-will and may be terminated by either party at any time, subject to the severance provisions above. Entire agreement. This letter, together with the enclosed agreements, is the entire agreement and supersedes all prior discussions.

Tool 13 — Authority Quick Card

Tax: 26 U.S.C. § 83 · § 409A · § 421 · § 422 · § 280G · § 162 · § 3121 · § 457 Benefits: 29 U.S.C. § 1002 · § 1104 · § 1132 · § 1133 Wage, leave, and equal pay: 29 U.S.C. § 206 · § 215 · § 2601 · § 2612 · § 2615 · 29 C.F.R. part 825 · part 1620 Discrimination: 42 U.S.C. § 2000e-2 · § 12112 · 29 U.S.C. § 623 · 42 U.S.C. § 1981 Trade secrets and whistleblowers: 18 U.S.C. § 1836 · § 1839 · 15 U.S.C. § 78u-6 · § 7243 · § 78j-4 · 29 U.S.C. § 157 Background checks and eligibility: 15 U.S.C. § 1681b · § 1681m · 8 U.S.C. § 1324a · § 1324b Arbitration: 9 U.S.C. § 2 · Epic Systems · New Prime · Digital Realty Securities disclosure: 17 C.F.R. part 229 · part 240 · 15 U.S.C. § 78m

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