Exhibit 10.3

December 19, 2008

Mr. Jack H. Webb

President and Chief Executive Officer

Alliance Financial Corporation

120 Madison Street, 18th Floor

Syracuse, New York 13202

Dear Mr. Webb,

Alliance Financial Corporation (the “Company”) anticipates entering into a
Securities Purchase Agreement (the “Participation Agreement”) with the United
States Department of Treasury (“Treasury”) that provides for the Company’s
participation in the Treasury’s TARP Capital Purchase Program (the “CPP”). If
the Company does not participate or ceases at any time to participate in the
CPP, this letter shall be of no further force and effect.

For the Company to participate in the CPP and as a condition to the closing of
the investment contemplated by the Participation Agreement, the Company is
required to establish specified standards for incentive compensation to its
senior executive officers and to make changes to its compensation arrangements.
To comply with these requirements, and in consideration of the benefits that you
will receive as a result of the Company’s participation in the CPP, you agree as
follows:

 

  1) No Golden Parachute Payments. The Company is prohibiting any golden
parachute payment to you during any “applicable tax year.” An “applicable tax
year” is any period during which (a) you are a senior executive officer, and
(b) Treasury holds an equity or debt position in the Company under the CPP.

 

  2) Recovery of Bonus and Incentive Compensation. Any bonus and incentive
compensation paid to you during a CPP Covered Period is subject to recovery or
“clawback” by the Company if the payments were based on materially inaccurate
financial statements or any other materially inaccurate performance metric
criteria.

 

  3) Compensation Program Amendments. Each of the Company’s compensation, bonus,
incentive and other benefit plans, arrangements and agreements (including golden
parachute, severance and employment agreements) either currently or hereinafter
in effect and including all amendments thereto (collectively, “Benefit Plans”)
with respect to you are hereby amended to the extent necessary to give effect to
provisions (l) and (2).

 

  4) Definitions and Interpretation. This letter shall be interpreted as
follows:

 

  •  

The term “Company” includes any entities treated as a single employer with the
Company under 31 C.F.R. § 30.1(b) (as in effect on the Closing Date). You are
also delivering a waiver pursuant to the Participation Agreement, and, as
between the Company and you, the term “employer” in that waiver will be deemed
to mean the Company as used in this letter.

 

  •  

The term “applicable tax year” shall be limited by, and interpreted in a manner
consistent with, 31 C.F.R. § 30.11, (as in effect on the Closing Date).

--------------------------------------------------------------------------------

  •  

“EESA” means the Emergency Economic Stabilization Act of 2008 as implemented by
guidance or regulation issued by the Department of the Treasury and as published
in the Federal Register on October 20, 2008.

 

  •  

“Golden parachute payment” is used with same meaning as in Section 111(b)(2)(C)
of EESA.

 

  •  

“Senior executive officer” means the Company’s “senior executive officers” as
defined in subsection 111(b)(3) of EESA.

 

  •  

Provisions (1) and (2) of this letter are intended to, and will be interpreted,
administered and construed to, comply with Section 111 of EESA and the guidance
thereunder (and, to the maximum extent consistent with the preceding, to permit
operation of the Benefit Plans in accordance with their terms before giving
effect to this letter)

 

  5) Miscellaneous. To the extent not subject to federal law, this letter will
be governed by and construed in accordance with the laws of New York. This
letter may be executed in two or more counterparts, each of which will be deemed
to be an original. A signature transmitted by facsimile will be deemed an
original signature.

In addition, the Company is required to review its Benefit Plans to ensure that
they do not encourage senior executive officers to take unnecessary and
excessive risks that threaten the value of the Company. To the extent any such
review requires revisions to any Benefit Plan with respect to you, you and the
Company agree to negotiate such changes promptly and in good faith.

In addition to the foregoing and in consideration for the benefits you will
receive as a result of Company’s participation in the CPP, you agree to
voluntarily waive any claim against the United States or the Company for any
changes to your compensation or benefits that are required to comply with EESA.
This waiver includes all claims you may have under the laws of the United States
or any state related to the requirements imposed by EESA, including without
limitation a claim for any compensation or other payments you would otherwise
receive, any challenge to the process by which this regulation was adopted and
any tort or constitutional claim about the effect of these regulations on your
employment relationship.

--------------------------------------------------------------------------------

Please indicate your agreement by signing and returning this letter agreement.

 

Yours sincerely,

/s/ John H. Watt, Jr.

John H. Watt, Jr. Executive Vice President
Alliance Financial Corporation

Intending to be legally bound, I agree with

and accept the foregoing terms on the date set

forth below.

 

/s/ Jack H. Webb

Jack H. Webb Date: December 19, 2008

--------------------------------------------------------------------------------

December 19, 2008

Mr. John H. Watt, Jr.

Executive Vice President

Alliance Financial Corporation

120 Madison Street, 18th Floor

Syracuse, New York 13202

Dear Mr. Watt,

Alliance Financial Corporation (the “Company”) anticipates entering into a
Securities Purchase Agreement (the “Participation Agreement”) with the United
States Department of Treasury (“Treasury”) that provides for the Company’s
participation in the Treasury’s TARP Capital Purchase Program (the “CPP”). If
the Company does not participate or ceases at any time to participate in the
CPP, this letter shall be of no further force and effect.

For the Company to participate in the CPP and as a condition to the closing of
the investment contemplated by the Participation Agreement, the Company is
required to establish specified standards for incentive compensation to its
senior executive officers and to make changes to its compensation arrangements.
To comply with these requirements, and in consideration of the benefits that you
will receive as a result of the Company’s participation in the CPP, you agree as
follows:

 

  1) No Golden Parachute Payments. The Company is prohibiting any golden
parachute payment to you during any “applicable tax year.” An “applicable tax
year” is any period during which (a) you are a senior executive officer, and
(b) Treasury holds an equity or debt position in the Company under the CPP.

 

  2) Recovery of Bonus and Incentive Compensation. Any bonus and incentive
compensation paid to you during a CPP Covered Period is subject to recovery or
“clawback” by the Company if the payments were based on materially inaccurate
financial statements or any other materially inaccurate performance metric
criteria.

 

  3) Compensation Program Amendments. Each of the Company’s compensation, bonus,
incentive and other benefit plans, arrangements and agreements (including golden
parachute, severance and employment agreements) either currently or hereinafter
in effect and including all amendments thereto (collectively, “Benefit Plans”)
with respect to you are hereby amended to the extent necessary to give effect to
provisions (l) and (2).

 

  6) Definitions and Interpretation. This letter shall be interpreted as
follows:

 

  •  

The term “Company” includes any entities treated as a single employer with the
Company under 31 C.F.R. § 30.1(b) (as in effect on the Closing Date). You are
also delivering a waiver pursuant to the Participation Agreement, and, as
between the Company and you, the term “employer” in that waiver will be deemed
to mean the Company as used in this letter.

 

  •  

The term “applicable tax year” shall be limited by, and interpreted in a manner
consistent with, 31 C.F.R. § 30.11, (as in effect on the Closing Date).

 

  •  

“EESA” means the Emergency Economic Stabilization Act of 2008 as implemented by
guidance or regulation issued by the Department of the Treasury and as published
in the Federal Register on October 20, 2008.

--------------------------------------------------------------------------------

  •  

“Golden parachute payment” is used with same meaning as in Section 111(b)(2)(C)
of EESA.

 

  •  

“Senior executive officer” means the Company’s “senior executive officers” as
defined in subsection 111(b)(3) of EESA.

 

  •  

Provisions (1) and (2) of this letter are intended to, and will be interpreted,
administered and construed to, comply with Section 111 of EESA and the guidance
thereunder (and, to the maximum extent consistent with the preceding, to permit
operation of the Benefit Plans in accordance with their terms before giving
effect to this letter)

 

  7) Miscellaneous. To the extent not subject to federal law, this letter will
be governed by and construed in accordance with the laws of New York. This
letter may be executed in two or more counterparts, each of which will be deemed
to be an original. A signature transmitted by facsimile will be deemed an
original signature.

In addition, the Company is required to review its Benefit Plans to ensure that
they do not encourage senior executive officers to take unnecessary and
excessive risks that threaten the value of the Company. To the extent any such
review requires revisions to any Benefit Plan with respect to you, you and the
Company agree to negotiate such changes promptly and in good faith.

In addition to the foregoing and in consideration for the benefits you will
receive as a result of Company’s participation in the CPP, you agree to
voluntarily waive any claim against the United States or the Company for any
changes to your compensation or benefits that are required to comply with EESA.
This waiver includes all claims you may have under the laws of the United States
or any state related to the requirements imposed by EESA, including without
limitation a claim for any compensation or other payments you would otherwise
receive, any challenge to the process by which this regulation was adopted and
any tort or constitutional claim about the effect of these regulations on your
employment relationship.

--------------------------------------------------------------------------------

Please indicate your agreement by signing and returning this letter agreement.

 

Yours sincerely,

/s/ Jack H. Webb

Jack H. Webb President and Chief Executive Officer
Alliance Financial Corporation

Intending to be legally bound, I agree with

and accept the foregoing terms on the date set

forth below.

 

/s/ John H. Watt, Jr.

John H. Watt, Jr. Date: December 19, 2008

--------------------------------------------------------------------------------

December 19, 2008

Mr. J. Daniel Mohr

Chief Financial Officer and Treasurer

Alliance Financial Corporation

120 Madison Street, 18th Floor

Syracuse, New York 13202

Dear Mr. Mohr,

Alliance Financial Corporation (the “Company”) anticipates entering into a
Securities Purchase Agreement (the “Participation Agreement”) with the United
States Department of Treasury (“Treasury”) that provides for the Company’s
participation in the Treasury’s TARP Capital Purchase Program (the “CPP”). If
the Company does not participate or ceases at any time to participate in the
CPP, this letter shall be of no further force and effect.

For the Company to participate in the CPP and as a condition to the closing of
the investment contemplated by the Participation Agreement, the Company is
required to establish specified standards for incentive compensation to its
senior executive officers and to make changes to its compensation arrangements.
To comply with these requirements, and in consideration of the benefits that you
will receive as a result of the Company’s participation in the CPP, you agree as
follows:

 

  1) No Golden Parachute Payments. The Company is prohibiting any golden
parachute payment to you during any “applicable tax year.” An “applicable tax
year” is any period during which (a) you are a senior executive officer, and
(b) Treasury holds an equity or debt position in the Company under the CPP.

 

  2) Recovery of Bonus and Incentive Compensation. Any bonus and incentive
compensation paid to you during a CPP Covered Period is subject to recovery or
“clawback” by the Company if the payments were based on materially inaccurate
financial statements or any other materially inaccurate performance metric
criteria.

 

  3) Compensation Program Amendments. Each of the Company’s compensation, bonus,
incentive and other benefit plans, arrangements and agreements (including golden
parachute, severance and employment agreements) either currently or hereinafter
in effect and including all amendments thereto (collectively, “Benefit Plans”)
with respect to you are hereby amended to the extent necessary to give effect to
provisions (l) and (2).

 

  8) Definitions and Interpretation. This letter shall be interpreted as
follows:

 

  •  

The term “Company” includes any entities treated as a single employer with the
Company under 31 C.F.R. § 30.1(b) (as in effect on the Closing Date). You are
also delivering a waiver pursuant to the Participation Agreement, and, as
between the Company and you, the term “employer” in that waiver will be deemed
to mean the Company as used in this letter.

 

  •  

The term “applicable tax year” shall be limited by, and interpreted in a manner
consistent with, 31 C.F.R. § 30.11, (as in effect on the Closing Date).

 

  •  

“EESA” means the Emergency Economic Stabilization Act of 2008 as implemented by
guidance or regulation issued by the Department of the Treasury and as published
in the Federal Register on October 20, 2008.

--------------------------------------------------------------------------------

  •  

“Golden parachute payment” is used with same meaning as in Section 111(b)(2)(C)
of EESA.

 

  •  

“Senior executive officer” means the Company’s “senior executive officers” as
defined in subsection 111(b)(3) of EESA.

 

  •  

Provisions (1) and (2) of this letter are intended to, and will be interpreted,
administered and construed to, comply with Section 111 of EESA and the guidance
thereunder (and, to the maximum extent consistent with the preceding, to permit
operation of the Benefit Plans in accordance with their terms before giving
effect to this letter)

 

  9) Miscellaneous. To the extent not subject to federal law, this letter will
be governed by and construed in accordance with the laws of New York. This
letter may be executed in two or more counterparts, each of which will be deemed
to be an original. A signature transmitted by facsimile will be deemed an
original signature.

In addition, the Company is required to review its Benefit Plans to ensure that
they do not encourage senior executive officers to take unnecessary and
excessive risks that threaten the value of the Company. To the extent any such
review requires revisions to any Benefit Plan with respect to you, you and the
Company agree to negotiate such changes promptly and in good faith.

In addition to the foregoing and in consideration for the benefits you will
receive as a result of Company’s participation in the CPP, you agree to
voluntarily waive any claim against the United States or the Company for any
changes to your compensation or benefits that are required to comply with EESA.
This waiver includes all claims you may have under the laws of the United States
or any state related to the requirements imposed by EESA, including without
limitation a claim for any compensation or other payments you would otherwise
receive, any challenge to the process by which this regulation was adopted and
any tort or constitutional claim about the effect of these regulations on your
employment relationship.

--------------------------------------------------------------------------------

Please indicate your agreement by signing and returning this letter agreement.

 

Yours sincerely,

/s/ Jack H. Webb

Jack H. Webb President and Chief Executive Officer
Alliance Financial Corporation

Intending to be legally bound, I agree with

and accept the foregoing terms on the date set

forth below.

 

/s/ J. Daniel Mohr

J. Daniel Mohr Date: December 19, 2008