The drafting and negotiation of employment agreements for CEOs and other high-level executives involves unique and sometimes colorful terminology such “golden handcuffs,” “blue-pencil”, “red-line,” “evergreen,” “yellow dog” and even “brown M&Ms.” Understanding this terminology, and its application, can assist executives, employers, and their advocates to negotiate the best deal possible. The following is a list of key terms for executive contracts, and their definitions:

1. Arbitration. An arbitration clause requires parties to the contract to resolve disputes regarding the contract with a private arbitrator instead of the court system. These proceedings are more confidential than a public lawsuit, but there is generally no right of appeal.
2. Backdated Stock Options. Stock options retroactively granted at a strike price equal to the lowest price of that stock in a particular year. Backdating is improper in most circumstances. See, e.g. In re UnitedHealth Group Inc. Shareholder Derivative Litigation, 591 F.Supp.2d 1023 (D. Minn. 2008)
3. Blue-Pencil. In some jurisdictions, a judge may have discretion to modify restrictions such as a non-compete provision by taking out a mythical “blue pencil” and crossing out some terms, while allowing other restrictions to remain, or possibly editing and revising the scope of the restriction in terms of time, geography or otherwise. Some states allow blue-penciling, and others do not.
4. Brown M&Ms. The hard rock band Van Halen included a provision in its standard performance contract that required a bowl of M&M candy back stage, with all of the brown M&Ms removed. The provision was meant as a test to see if the performance venue had read the contract, which also contained many technical and substantively important requirements for the band’s equipment. A brown M&M clause might refer to a trivial but specific term which is included to see if the other party is reading or complying with the agreement or it might be set up as an easy basis for a party to claim breach. It can also refer to prima donna type demands of both celebrities and executives (such as former Tyco CEO Dennis Kozlowski who purchased a $6,000 shower curtain with corporate funds).
5. C-Suite. A metonym representing all of the top executive officers at a company.
6. Change-in-Control. A clause triggered by a change in ownership or controlling ownership of the employer corporation whether by acquisition, merger, sale of stock or assets, public offering, change in the composition of the board of directors, or otherwise, often resulting in certain benefits or protections for the executive. Also referred to as a “Change of Control.”
7. Claw-back. A provision requiring the executive to surrender or pay back gains from the exercise of stock options if he or she competes or engages in other detrimental behavior after leaving the employer.
8. Closely-held. Generally, a corporation or business entity is considered closely held if it has 35 or fewer shareholders or owners. Employees who are also shareholders in a closely-held corporation may have certain rights to continued employment.
9. COBRA. Consolidated Omnibus Budget Reconciliation Act. A federal law requiring 18 months of continued medical insurance, at employee expense, following termination.
10. CXO. Chief [something] Officer, describing the highest or “C” level executives.
11. Defend Trade Secrets Act of 2016 (“DTSA”). A federal law which, among other things, requires any agreement regarding trade secrets or confidential information to include notice of certain immunity provisions for whistleblowers.
12. Delegation Agreement. Used by some European companies to govern the terms of employment for an executive sent overseas, i.e. to the United States.
13. Double Trigger/Single Trigger. Used in conjunction with a change in control clause (q.v.), a double trigger requires both (A) a change in control and (B) the termination of employment. A single trigger provision could allow an executive to quit and be entitled to a golden parachute (q.v.) in the event of a change in control.
14. ERISA. Employee Retirement Income Security Act.
15. EU Banker Bonus Cap. European Union regulations capping bonuses for banking industry executives at 100% of salary, unless 65% of the bank’s shareholders approve an increase to 200% of salary. An example of regulation meant to curb perceived “abuses” in executive compensation.
16. Evergreen. A contract that automatically renews.
17. FINRA. Financial Industry Regulatory Authority, successor to the NASD.
18. Garden Leave. Developed in the United Kingdom, a paid leave which does not allow the executive to perform any actual work but prevents him or her from competing. A law proposed in Massachusetts in 2016 would have required garden leave pay for non-competes.
19. Golden Handcuffs. Any terms or restrictions that make it prohibitively expensive for the executive to leave, usually because he or she would be forfeiting significant stock options or other types of bonus or equity.
20. Golden Hello. A make-whole payment (q.v).
21. Golden Parachute. Any benefit, often a substantial severance package and/or the acceleration of stock options, that is given to a departing executive on his or her departure, sometimes as a result of a change in control.
22. Good Reasons Clause. A provision stating the conditions under which the employee can quit for good reason and receive some type of severance payment.
23. Incentive Stock Options. Stock options (q.v.) issued pursuant to a plan that is in compliance with and subject to provisions of Section 422 of the Tax Code. Taxable to the executive as capital gains when the stock is ultimately sold (not at grant, vesting or exercise.)
24. Katie Couric Clause. A proposed SEC rule on Executive Compensation and Related Party Disclosure that would have required publicly traded companies to disclose not only the salaries of their top five executives, but also those of top-earning non-executives, even celebrities like Katie Couric. The SEC did not finalize the rule.
25. KERP. Key Employee Retention Plan. Incentives offered to management and key employees of a company in Chapter 11 bankruptcy. Limited by changes to the Bankruptcy Code in 2005. Often replaced with a Key Employee Incentive Program (KEIP).
26. KESPA. Key Employee Severance Protection Agreement.
27. Key-Man. A key man or key-person provision refers to a contractual provision that depends on the status of another individual who is not a party to the contract. Key-man insurance is a policy on another person, typically a key employee. Musicians use key-man provisions to ensure that they can leave a management agency if their agent is no longer with the agency. Newscaster Greta Van Susteren had a key man clause in her agreement with Fox News which allowed her to leave on certain terms because former Fox CEO Roger Ailes was no longer with the company.
28. Loaned Executive Program. A program whereby a corporation “lends” an executive to a charitable organization such as the United Way by paying his or her salary, as a way of giving back to the community while at the same time providing the executive with a unique opportunity to work outside the corporate structure, sometimes but not necessarily as an alternative to severance or termination.
29. Make-whole Payment. A signing bonus designed to compensate for whatever the executive is leaving behind or forfeiting at his or her former position.
30. Mega-grant. Generally describing any stock option grant in excess of three to eight times the executive’s salary and bonus.
31. Morality Clause. Also known as a Morals Clause, Bad-Boy Clause or Bad-Girl Clause. A clause in a contract requiring a party to adhere to certain “moral standards” (i.e. by not being convicted of a crime or using illegal drugs) the breach of which can lead to cancellation of the contact. Often used with athletes like Tiger Woods in sponsorship and endorsement agreements. (Olympic swimmer Ryan Lochte, baseball legend Babe Ruth and NBC anchor Brian Williams also had Morality Clauses.) In executive contracts this is sometimes referred to as “moral turpitude” and serves as the basis for “cause” termination of employment. “Reverse morals clauses” allow the individual the same rights if a company is involved in wrongdoing.
32. Non-Circumvention. Agreement not to circumvent another party to take advantage of a contact, idea, or other opportunity.
33. Non-Compete. A restriction on future activity in competition with the former employer, whether as an employee, contractor or business owner.
34. Non-Disclosure. A form of confidentiality clause, an agreement not to disclose information.
35. Non-Disparagement. An agreement not to make negative comments about the other party. “Disparagement” is generally considered broader than defamation, which requires an element of untruth.
36. Non-Qualified Stock Options. Options which are not subject to the restrictions of Incentive Stock Options. Taxable on the amount of gain at date of exercise.
37. Non-Recruitment. An agreement not to attempt to recruit away other employees from the old employer, generally for a limited period of time.
38. Non-Solicitation. An agreement not to contact or seek business from certain persons or entities, generally customers or clients, or potential customers, of the old employer. May also be a restriction on soliciting employees.
39. Phantom Stock. Phantom stock plans use units that are equivalent to but are not actual shares of stock, providing the employee with the value of an increased stock price without the corresponding ownership rights.
40. Premium Stock Options. Options priced above market so that the price must go up for the executive to cash in.
41. Purple Pencil. Like the red pencil rule, the purple pencil rule requires the entire non-compete to be stricken if any portion is overly broad. Unlike the red pencil rule, however, under the purple pencil rule, if a company made an objectively good faith effort to draft the particular non-compete narrowly, the court can remedy any over breadth by reforming it (i.e. rewriting) the offending portions of the agreement. The purple pencil rule has not yet been adopted by any state, although it was suggested to the Massachusetts legislature.
42. Red-line. A draft of a contract showing changes and edits, typically using the “track changes” feature on Microsoft Word.
43. Red Pencil. A rule that requires the entire non-compete to be stricken if any portion of it is overly broad. Compare to “Blue Pencil.”
44. Reloaded Stock Options. An enhancement allowing an employee to exercise a valuable stock option before the end of its term, using already-owned mature shares, without giving up the benefit of future price appreciation on the full number of shares covered by the option. When the option is exercised using a stock-for-stock exchange, a new option is granted covering the same number of shares as those tendered to exercise the original option. The new option, or reload option, has an option price equal to the trading price on the day it is granted and expires on the same date as the original option.
45. Restricted Stock. Stock that is issued to an employee, sometimes with voting and other ancillary rights, but which cannot be sold for a restricted period of time and is subject to forfeiture if the employee leaves before the vesting date.
46. Sarbanes-Oxley Act. Law passed in 2002 to combat corporate fraud.
47. SEC. Securities and Exchange Commission.
48. Section 409A. 26 U.S. Code Section 409A is an Internal Revenue Code provision applying to deferred compensation.
49. SERP. Supplemental Executive Retirement Plan, a non-qualified retirement plan for key company employees, such as executives, that provides benefits above and beyond those covered in other retirement plans such as IRA, 401(k) or Non-Qualified Deferred Compensation (“NQDC”) plans. There are many different kinds of SERPs available to companies wishing to ensure their key employees are able to maintain their current standards of living in retirement. Sometimes also known as “top hat plans.”
50. Silver Parachute. A less generous of golden parachute granted to lower level executives.
51. Stock Appreciation Rights. The right to be paid an amount equal to the increase in value or spread between the value of a share of stock on the date of the grant and the date the grant is exercised.
52. Stock Option. The right, usually given to an employee, to purchase stock at a certain price (“strike price”). If the actual or trading price is higher, the employee benefits from the difference.
53. Stock Option Mandate. A requirement that certain executives purchase and hold a certain amount of stock in the company in which they work.
54. TARP. Troubled Asset Relief Program.
55. Term of Years Agreement. A contract pursuant to which an employee promises to work for a time period, such as three years. If the executive leaves before the end of the term, the employer may not stop the executive from leaving but may seek consequential damages and lost profits that result. See, e.g. St. Jude Medical, S.C., Inc. v. Biosense Webster, Inc., 818 F.3d 785 (8^th Cir. 2016)
56. Tin Parachute. Payments or awards made to all employees below the executive level, usually upon a change in control.
57. Top Hat Plan. An unfunded, non-ERISA plan maintained for providing deferred compensation to a select group of management or highly-compensated employees.
58. Yellow Dog Contract. Historically, an agreement whereby an employee promises as a condition of employment that he or she will not join a union. Such agreements are now prohibited by federal law. The term is rarely used in a broader sense to refer to an employment contract with other restrictions, such as a non-compete.

About the Author
Trepanier MacGillis Battina P.A. is a Minnesota employment law firm located in Minneapolis, Minnesota. Their employment attorneys can be reached at 612.455.0500.