Executive Severance, Equity Redemption and Release Review

An executive departure agreement can exchange a cash payment for much more than an employment release. It may redeem ownership, cancel bonus rights, end future participation and allocate tax liabilities. Identify each part of the bargain before evaluating the amount offered.

Philip Falco, Attorney & CPA provides a defined review of executive compensation documents and their tax consequences. The complete plan, award history and proposed agreement should be read together.

Compare Existing Rights With the New Offer

Prepare two schedules: what the existing agreements provide if you do not sign, and what the proposed agreement changes if you do. List each award separately, including retained units from earlier redemptions. Identify contractual forfeiture or repurchase provisions, notice requirements, termination classifications and later amendments.

An offer deadline, an equity forfeiture date and a bonus-payment deadline can be different. A proposal to surrender an interest does not itself establish that the interest has already disappeared. Likewise, refusing an offer does not guarantee that every existing right survives. Find the provision and event controlling each result.

Separate the Payment Components

• Accrued compensation or a bonus claimed under an existing agreement.
• New severance or settlement consideration.
• Consideration for actual shares or partnership interests.
• Settlement of phantom awards or other compensation promises.
• Payments tied to restrictive covenants, transition services or consulting work.

A document’s title does not establish tax character. Compensation may involve wage reporting and withholding, while an actual partnership-interest disposition can require basis, liability and ordinary-income analysis. See LLC buyout: sale versus redemption and IRS Publication 541.

Review What the Release Covers

Read the definition of released parties, the claims covered, unknown-claim language, the effective date and the exclusions. Equity, distribution, contract, fiduciary-duty and tax-related claims may appear alongside employment claims. Determine whether rights to enforce the new payment promise, retain specified ownership, obtain indemnification or receive vested benefits are preserved.

Enforceability depends on the claim and applicable law. Federal discrimination waivers have their own requirements, and an agreement cannot prevent filing a charge or participating in an EEOC proceeding. The EEOC severance-waiver guidance explains these distinctions. State wage rights and other protected claims need a separate review.

Calculate the Signing and Revocation Periods

For an ordinary ADEA waiver involving an employee age 40 or older, federal law generally requires at least 21 days to consider the agreement and at least seven days to revoke after signing. Certain group termination or exit-incentive programs require at least 45 days and additional disclosures. Settlement of an already-filed age-discrimination charge or lawsuit follows different rules. These protections concern the age-claim waiver; they do not automatically establish every other contractual deadline. See 29 U.S.C. §626(f).

Timing is only part of the waiver requirements. An ordinary ADEA waiver must also specifically refer to rights or claims under the ADEA, advise consultation with an attorney in writing, provide value beyond existing entitlements and exclude claims arising after signing. The agreement must satisfy the other statutory requirements as well.

Confirm when the final offer was received, how amendments affect the review period, how to revoke and when payment becomes due. Request any extension in writing.

Coordinate Tax Timing and Tax Risk

A release-dependent payment window spanning two tax years can raise §409A issues if the executive controls the year of payment. IRS Notice 2010-80 addresses these provisions and correction methods subject to conditions. The appropriate structure depends on whether the arrangement is covered by §409A or qualifies for an exclusion.

Review payroll treatment, indemnities, tax disclaimers and any waiver of claims arising from plan failures. A disclaimer does not establish compliance. A tax indemnity can add exposure beyond the payment received. Applicable corporate transactions may also require golden-parachute analysis.

When the Equity Is Said to Have No Value

Ask which valuation date, distribution waterfall, debt, preferences and future events support that conclusion. Current liquidation value, transaction proceeds and potential future participation are different questions. Review the financial information available and the governing entity law before treating an economic assertion as proof that all rights have ended.

Bring the Complete Document History

Useful records include signed awards and amendments, the governing operating or partnership agreement, bonus terms, prior releases, redemption records, termination notices, current ownership statements and proposed payout calculations. Our management-equity departure guide addresses surviving ownership and vesting; the bonus agreement guide addresses payment conditions.

Define the Review You Need

A written engagement can cover document comparison, legal and tax analysis, drafting or negotiation, coordination with transaction advisers, and reporting assistance. Identify whom counsel represents. Company counsel’s role does not automatically include the individual executive, and employment litigation or specialized valuation may require additional counsel or professionals.

Authorities checked October 7, 2026. General legal and tax information. The result depends on the governing documents, applicable law, transaction and tax year. Scheduling a consultation does not extend a deadline.