An executive agreement’s economics are contained in a handful of defined terms.
Cause. Narrow definitions protect the executive: conviction of a felony, material breach after notice and a cure period, wilful misconduct causing material harm, and gross negligence. Broad definitions — failure to perform to the board’s satisfaction — give the company an option rather than a standard. Most disputes turn on this definition and on whether the required process was followed.
Good reason. Permits the executive to resign with severance on defined events: material reduction in duties, title or compensation; relocation beyond a stated distance; and material breach by the company. It should require notice, a cure period, and resignation within a window.
Severance. A multiple of salary and bonus, benefit continuation, treatment of equity, and pro-rata bonus. Enhanced on a qualifying termination following a change of control.
Change of control defined by ownership percentage, board composition change, and asset sales.
Deferred compensation rules constrain payment timing and require careful drafting; violations produce penalties on the executive.
Restrictive covenants matched to the severance period and enforceable under the governing law.
Indemnification and insurance confirmed in the agreement, including tail coverage.