As a CFO, I've always hated how much of my day is choosing between control and speed.

You either get real-time visibility or you get your team moving fast — never both.

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Hey it’s CJ, former tech cfo, current dope email sender.

It’s crazy to think I started writing Mostly Metrics in December of 2020. It was in the midst of COVID and I was living in (very) isolated Cape Cod, bored out of my skull.

My mission back then, and still today, was to index the finance profession for current and aspiring CFOs, especially those working at startups (series B through IPO).

Since then what I’ve written about has expanded, along with the CFO’s remit (we ball).

Fast forward to April of 2025, and content creation is my full time job. I quickly realized there was no online watering hole for a specific subset of finance professionals: PE backed CFOs and their teams.

And thus, Looking for Leverage was born. It’s a free newsletter that comes out once a week, which I write from the same rolling chair I stole from my wife’s office in 2022, covering topics like:

Believe it or not, there are now more than 30,000 private equity backed CFOs in the world. This newsletter is for those brave souls, and all the future portco finance leaders, riding the ups and downs of a nebulous valuation creation plan on a strict timeline. It’s the playbook I wish I had.

(If you don’t think div recaps or cash sweeps are interesting, fear not, we’ll be back to our regularly scheduled cash burning ways next week)

On to the LFL guest post!!!

Hi, it's CJ Gustafson and welcome to a special Looking for Leverage guest post.

Today's term: the 280G gross-up. Specifically, the IRS rule that says your closing bonus is too big and slaps a 20% excise tax on top of it.

The way it gets pitched to you, the new CFO, is something like: "do you want to avoid this tax? Great, we'll run a quick cleansing vote, the cap table will rubber-stamp it, and you'll be fine."

Nobody mentions that the vote requires a disclosure document with your “parachute number” on it. That document goes to every shareholder. Including the sales rep who exercised six options two years ago.

We were about 75% of the way through closing. Definitive docs were signed, financing was committed, and the deal team was running through a list of cleanup items on a Friday evening call. Someone from the sponsor's legal team mentioned, almost in passing, that we'd need to run a "280G cleansing vote" before close, and that as part of it, every shareholder entitled to vote was going to see what every employee getting a parachute payment was making.

First question I had:

Section 280G of the Internal Revenue Code is the rule that says when a change in control triggers payments to someone deemed a "disqualified individual" (roughly senior officers, directors, and certain shareholders) and those payments exceed three times that person's average W-2 over the prior five years, the excess gets hit twice.

i.e., the recipient pays a 20% excise tax on top of regular income tax.

It came out of the 1980s takeover wave. Ross Johnson at RJR Nabisco walked away with a reported $53M golden parachute, the largest executive payout in corporate history at the time, despite basically ruining the company and leaving employees to pick up the pieces. Time magazine put him on the cover with "A Game of Greed” headline, and Congress decided there should be a tax penalty for compensation that big tied to a change in control.

Wait, but first: what's a "parachute" payment? The word sounds huge. Like Ross Johnson huge. It's not.

For 280G purposes, a parachute payment is any payment or benefit that's contingent on the change in control. The size doesn't matter. A $50K deal bonus that vests at close is a parachute payment. The legal frame is “any compensation triggered by the deal," and it has nothing to do with how big the payment feels. The "golden parachute" branding is from the public company headlines. The IRS unfortunately calls them parachute payments whether the number is $25K or $25M.

With that out of the way, here's what counts as a parachute payment in reality:

So basically every possible benefit is thrown in there to really lard the thing up.

The threshold that number is measured against is relative to your historical comp, not an absolute dollar number. So a CFO who joined 18 months ago with a modest base and is now getting accelerated options or RSUs and a transaction bonus can blow through it easily, because the five-year W-2 average it’s compared to is artificially low.

Once you're over the threshold, the deal has three options.

The cleansing vote is the route most private companies take. If 75% of the disinterested shareholders approve the parachute payment, the excise tax goes away entirely. So no 20% hit and no lost deduction for the company. It sounds like a free lunch, and it’s kinda sorta free in tax dollars. But it’s far from free in privacy.

To run the vote, you have to put the parachute payment amount in front of the shareholders being asked to approve it. They get a written disclosure that says, in plain English, "we are asking you to approve the following parachute payments to the following individuals." Names. Amounts.

The catch is who counts as a shareholder. The Treasury regulations say the disclosure has to go to every shareholder entitled to vote. The disqualified individuals (the executives getting the parachute payments) are excluded from the vote itself, but the disclosure goes to everyone else on the cap table. And anyone who exercised an option and held a single share of common stock sees it too. If your company has a broad-based options program with a meaningful number of employee shareholders, the IC who exercised 10 options three years ago now knows what the CFO is making on the deal.

The privacy hit isn't always just an awkward Slack message. A friend whose company was sold to a FANG in what was essentially a firesale watched the common stock go to zero. Employees kept their jobs because the buyer hired them, but the equity they'd been working toward for years was worth nothing. The 280G disclosure went out as part of the cleansing vote, and the numbers showed the CEO and CFO each making over $2M to close the deal and stick around. Disgruntled employees took the disclosure to the press. It made the news, and people were furious.

Nothing in those numbers was illegal or even unusual. Transaction bonuses and retention packages for the executives running the sale are standard and market. But "market" is a poor shield against the optics of "common stock went to zero, executives took home $2M each."

Let's say you're a CFO with the following compensation history.

Your transaction-related payments at close:

Your excess parachute payment (the amount over 3x base): $2.4M minus $1.2M = $1.2M.

The 20% excise tax on the excess: $1.2M times 20% = $240K, paid by you, on top of your regular income tax on the full $2.4M.

Now the three options.

Cut the payments: reduce the package by $1.2M to bring it under the threshold. You take home $1.2M less. Hard pass.

Gross-up: the company pays you an additional amount sized so that after the excise tax and the taxes on the gross-up, you net the same as if 280G didn't exist. Rough math, the gross-up costs the company about $450K-$500K depending on your marginal rate, and the company also loses the deduction on the excess parachute amount.

Cleansing vote: the company pays nothing extra, and the excise tax disappears, but your $2.4M figure shows up in a shareholder consent that goes to every shareholder entitled to vote.

It’s the same $2.4M package with three very different outcomes for the company, for you, and for what the people around you know about your comp.

Back to the Friday call where I learned what 280G was.

We went with the cleansing vote. There was no real alternative. A public-company-style gross-up would have cost the company hundreds of thousands of dollars they weren't willing to spend on a deal that was already tight on closing economics, and cutting the package wasn't on the table.

The vote happened the following week. The disclosure went out. I knew the rollover holders would see it. I knew the sponsor would see it. What I had not fully internalized was the part about anyone who held common stock seeing it too.

A few days later, a sales rep messaged me on Slack. This was not a senior person, it was someone who had exercised a chunk of options a couple of years earlier and held the shares. The message was something like: "Wow, Jim is making out pretty damn good on this deal."

Jim wasn't me, but he was someone I worked with closely, and the sales rep was treating me as the obvious person to gossip with about it. I redirected the conversation. But the redirect didn't put the genie back in the bottle. He'd seen the number, and so had everyone else on the cap table.

What I learned: the deal team and the tax advisors typically make the 280G call without much input from the disqualified individuals themselves, because most disqualified individuals don't know it's happening until it's already happened. The right time to ask about it is the moment a sale starts looking real, not the week before close.

Wishing you a parachute payment small enough to stay under the threshold, and large enough to matter,

CJ

Looking for Leverage breaks down one PE term, clause, or mechanic each week, written for the CFOs and finance leaders who actually have to live with these things.

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Plus: forward-deployed bankers, outcome-based pricing, and what CFOs should measure
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Hoping the whole company doesn’t see how much you’re making on the deal,

CJ