Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is made and entered into by and
between E*TRADE Financial Corporation (the “Company”) and Donald H. Layton
(“Executive”) as of the Effective Date.

1. Position and Duties: Effective March 2, 2008 (the “Effective Date”),
Executive was appointed as the Company’s Chief Executive Officer (“CEO”),
reporting directly and exclusively to the Company’s Board of Directors (the
“Board”). In addition, Executive shall continue in his previous role as Chairman
of the Board. Executive agrees to devote all necessary time, energy and skill to
his duties at the Company. The Company acknowledges and agrees that Executive’s
continued involvement in charitable, industry and civic activities, and as a
director of Assured Guaranty Limited, will not create a business or competitive
conflict with the activities of the Company and are consistent with Executive’s
effective service as Chairman and CEO of the Company.

During his service as CEO, Executive shall not receive further compensation as
Chairman and member of the Board, but his equity awards granted prior to the
Effective Date shall continue on their existing terms. The Company shall provide
Executive with the same indemnification agreement, if applicable, and D&O
insurance protection provided from time to time to its officers and directors
generally. Notwithstanding anything to the contrary in this Agreement, the
rights of Executive under any indemnification agreement and the D&O insurance
coverage with respect to all matters, events or transactions occurring or
effected during the Executive’s period of employment or service as a director
with the Company shall survive the termination of Executive’s employment.

2. Term of Agreement: This Agreement shall remain in effect through December 31,
2009 (the “Term”), unless Executive’s employment as CEO is terminated earlier by
either party, subject to payments under Section 5 hereof to the extent
applicable. If the Board requests that Executive continue his service as
Chairman and CEO beyond December 31, 2009, the parties shall negotiate in good
faith to extend Executive’s employment agreement with annual target compensation
substantially similar to that set forth in this Agreement, and such other terms
consistent with those of a chief executive officer as may be agreed at that
time. Subject to payment of any amounts or provision of any benefits that may
become due under Section 5 on termination of employment, Executive’s employment
with the Company shall be “at-will”.

3. Compensation: During the Term, Executive shall be compensated by the Company
for his services as CEO as follows:

(a) Base Salary: Executive shall be paid an annualized Base Salary of $1,000,000
per year, subject to applicable withholding, in accordance with the Company’s
normal payroll procedures.

(b) Performance Bonus: Executive shall not have the opportunity to earn an
annual cash performance bonus.

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(c) Benefits: Executive shall have the right, on the same basis as other senior
executives of the Company, to participate in and to receive benefits under any
of the Company’s employee benefit plans, as such plans may be modified from time
to time.

4. Equity Compensation Grants: In connection with his appointment as CEO on the
Effective Date, Executive has been granted (i) a stock option to purchase
4,054,161 shares of the Company’s common stock at an exercise price of $4.27 per
share (the “New Options”), and (ii) a stock-based award with respect to
1,800,351 shares of the Company’s common stock (together with the New Options,
the “New Equity Grants”). Each agreement evidencing the New Equity Grants shall
include each of the additional provisions set forth in this Section 4 and in
Section 5 below. To the extent the New Options are vested upon any termination
of Executive’s employment as CEO, the options shall remain exercisable by
Executive (or his estate, as applicable) until two years following the later of
(x) the date on which Executive ceases to be employed as CEO and (y) the date on
which Executive ceases to be a member of the Board, but in no event beyond the
maximum seven-year expiration date set forth in the option agreement.

(a) Vesting Schedule. Subject to the remainder of this Section 4, the New Equity
Grants shall vest according to the following schedule:

 

Cumulative Percentage Vested

  

Date

25.0%

   April 1, 2008

37.5%

   July 1, 2008

50.0%

   October 1, 2008

62.5%

   January 1, 2009

75.0%

   April 1, 2009

87.5%

   July 1, 2009

100.0%

   October 1, 2009

Notwithstanding the foregoing vesting schedule, 12.5% of the New Options were
immediately vested on the grant date.

(b) Acceleration of New Equity Grant Vesting Upon Change in Control. In the
event of a Change in Control, each New Equity Grant held by Executive, to the
extent then outstanding, shall become fully vested and, if applicable,
exercisable (and any forfeiture provision shall lapse) immediately prior to but
conditioned upon the consummation of the Change in Control.

(c) Acceleration of New Equity Grant Vesting Upon Death or Permanent Disability.
If Executive’s employment as CEO terminates due to Executive’s death or
Permanent Disability, then each New Equity Grant held by Executive, to the
extent then outstanding, shall become fully vested and, if applicable,
exercisable (and any forfeiture provision shall lapse) in full as of the date of
Executive’s death or the date of termination of employment due to Permanent
Disability, as applicable.

 

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5. Effect of Termination of Employment During the Term.

(a) Involuntary Termination: If Executive’s employment with the Company is
terminated as a result of an Involuntary Termination (other than in the
circumstance set forth in Section 5(b) below), then subject to Executive signing
and not revoking the Release, Executive shall receive the following benefits, in
addition to any compensation and benefits earned under Section 3 through the
date of Executive’s termination of employment:

(i) a lump sum cash severance payment equal to $5 million, which shall be paid
within 30 days following the effectiveness of the Release (so long as such
Release is signed in a period such that the payment may be made no later than 2
and  1/2 months following the end of the year in such termination of employment
occurs); and

(ii) accelerated vesting of all New Equity Grants.

(b) Appointment of New CEO. In the event that during Executive’s employment, the
Board elects a CEO to succeed Executive on or prior to December 31, 2009, then
Executive shall be entitled to receive his Base Salary accrued through the date
when he no longer serves as CEO, 50% of the then unvested portion of each New
Equity Grant shall immediately vest, and the remaining 50% of the then unvested
New Equity Grants shall be forfeited. It is expected that at such time Executive
will remain (non-executive) Chairman, on terms to be negotiated by the parties
in good faith at that time.

(c) Other Termination. In the event of a termination of Executive’s employment
as CEO not specified under Section 4(c), Section 5(a) or Section 5(b) above,
including, without limitation, a termination for Cause, Executive shall not be
entitled to any compensation or benefits from the Company, other than those
earned under Section 3 through the date of his termination and, in the case of
each stock option, restricted stock award or other Company stock-based award
granted to Executive, the extent to which such awards are vested through the
date of his termination or as otherwise provided in the applicable award
agreement.

6. Certain Tax Considerations.

(a) Section 409A.

(i) The payments under Section 5 are intended to qualify for the short-term
deferral exception to Section 409A of the Code (“Section 409A”) described in the
regulations promulgated under Section 409A (the “Section 409A Regulations”) to
the maximum extent possible, and to the extent they do not so qualify, they are
intended to qualify for the involuntary separation pay plan exception to
Section 409A described in the Section 409A Regulations to the maximum extent
possible. To the extent Section 409A is applicable to this Agreement, this

 

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Agreement is intended to comply with Section 409A, and shall be interpreted and
construed and shall be performed by the parties consistent with such intent, and
the Company shall have no right, without Executive’s consent, to accelerate any
payment or the provision of any benefits under this Agreement if such payment or
provision of such benefits would, as a result, be subject to tax under
Section 409A of the Code.

(ii) Without limiting the generality of the foregoing, if Executive is a
“specified employee” within the meaning of Section 409A, as determined under the
Company’s established methodology for determining specified employees, on the
date of termination of employment, then to the extent required in order to
comply with Section 409A, amounts that would otherwise be payable under this
Agreement during the six-month period immediately following such termination
date shall instead be paid (together with interest at the then current six-month
LIBOR rate) on the first business day after the first to occur of (i) the date
that is six months following Executive’s termination of employment and (ii) the
date of Executive’s death.

(iii) Except as expressly provided otherwise herein, no reimbursement payable to
Executive pursuant to any provisions of this Agreement or pursuant to any plan
or arrangement of the Company covered by this Agreement shall be paid later than
the last day of the calendar year following the calendar year in which the
related expense was incurred, and no such reimbursement during any calendar year
shall affect the amounts eligible for reimbursement in any other calendar year,
except, in each case, to the extent that the right to reimbursement does not
provide for a “deferral of compensation” within the meaning of Section 409A of
the Code.

(iv) For purposes of this Agreement, the terms “terminate,” “terminated” and
“termination” mean a termination of Executive’s employment that constitutes a
“separation from service” within the meaning of the default rules of
Section 409A of the Code; provided, however, that, in the event of the
Executive’s Permanent Disability, “separation from service” means the date that
is six months after the first day of disability.

(b) 280G Limitation: If the payments and benefits provided to Executive under
this Agreement, either alone or together with other payments and benefits
provided to him from the Company (including, without limitation, any accelerated
vesting thereof) (the “Total Payments”), would constitute a “parachute payment”
(as defined in Section 280G of the Code) and be subject to the excise tax (the
“Excise Tax”) imposed under Section 4999 of the Code, the Total Payments shall
be reduced at Executive’s exclusive option if and to the extent that a reduction
in the Total Payments would result in Executive retaining a larger amount than
if Executive received

 

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all of the Total Payments, in each case measured on an after-tax basis (taking
into account federal, state and local income taxes and, if applicable, the
Excise Tax). The determination of any reduction in the Total Payments shall be
made at the Company’s cost by the Company’s independent public accountants or
another firm designated by the Company and reasonably approved by Executive, and
may be determined using reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company shall pay
Executive’s costs incurred for tax, accounting and other professional advice in
the event of a challenge of any such reasonable, good faith interpretations by
the Internal Revenue Service.

7. Certain Definitions: For the purposes of this Agreement, the following
capitalized terms shall have the meanings set forth below:

(a) “Cause” shall mean any of the following:

(i) Executive’s theft, dishonesty, willful misconduct, breach of fiduciary duty
for personal profit, or falsification of any material employment or Company
records;

(ii) Executive’s willful violation of any law, rule, or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order or
commission of an act that involves moral turpitude;

(iii) Executive’s intentional failure to perform stated duties;

(iv) Executive’s improper disclosure of the Company’s confidential or
proprietary information;

(v) any material breach by Executive of the Company’s Code of Professional
Conduct, which breach shall be deemed “material” if it results from an
intentional act by Executive and has a material detrimental effect on the
Company’s reputation or business; or

(vi) any material breach by Executive of this Agreement, which breach, if
curable, is not cured within thirty (30) days following written notice of such
breach from the Company.

In the event that the Company terminates Executive’s employment for Cause, the
Company shall provide written notice to Executive of that fact prior to, or
concurrently with, the termination of employment. Failure to provide written
notice that the Company contends that the termination is for Cause shall
constitute a waiver of any contention that the termination was for Cause, and
the termination shall be irrebuttably presumed to be an involuntary termination
without Cause. However, if, within thirty (30) days following the termination,
the Company first discovers facts that would have established “Cause” for
termination, and those facts were not known by the Company at the time of the
termination, then the Company shall provide Executive with written notice,
including the facts establishing that the purported “Cause” was not known at the
time of the termination, and the Company will pay no severance.

 

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(b) “Change in Control” shall mean the occurrence of any of the following
events:

(i) (X) any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the total combined
voting power represented by the Company’s then outstanding voting securities
other than the acquisition of the Company’s common stock by a Company-sponsored
employee benefit plan or through the issuance of shares sold directly by the
Company to a single acquiror; or (Y) any “person” (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing less than
fifty percent (50%) of the total combined voting power represented by the
Company’s then outstanding voting securities, but in connection with the
person’s acquisition of securities the person acquires the right to terminate
the employment of all or a portion of the Company’s management team;

(ii) the Company is party to a merger or consolidation which results in the
holders of the voting securities of the Company outstanding immediately prior
thereto failing to retain immediately after such merger or consolidation direct
or indirect beneficial ownership of more than fifty percent (50%) of the total
combined voting power of the securities entitled to vote generally in the
election of directors of the Company or the surviving entity outstanding
immediately after such merger or consolidation;

(iii) a change in the composition of the Board occurring within a period of
twenty-four (24) consecutive months, as a result of which fewer than a majority
of the directors are Incumbent Directors;

(iv) effectiveness of an agreement for the sale, lease or disposition by the
Company of all or substantially all of the Company’s assets; or

(v) a liquidation or dissolution of the Company.

The Incumbent Directors shall have the right to determine whether multiple sales
or exchanges of the voting stock of the Company, which, in the aggregate, would
result in a Change of Control, are related, and its determination shall be
final, binding and conclusive.

 

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(c) “Code” means the Internal Revenue Code of 1986, as amended.

(d) “Change in Control Period” shall mean the period commencing on the earlier
of: (i) sixty (60) days prior to the date of consummation of the Change in
Control; (ii) the date of the first public announcement of a definitive
agreement that would result in a Change in Control (even though still subject to
approval by the Company’s stockholders and other conditions and contingencies);
or (iii) the date of the public announcement of a tender offer that is not
approved by the Incumbent Directors and ending on the two year anniversary date
of the consummation of the Change in Control.

(e) “Change in Control Period Good Reason” shall mean any of the following
conditions:

(i) a decrease in Executive’s Base Salary or employee benefits other than as
part of any across-the-board reduction applying to all senior executives and not
resulting in those senior executives receiving lesser benefits than similarly
situated executives of an acquiror;

(ii) a material, adverse change in Executive’s title, authority,
responsibilities or duties, as measured against Executive’s title, authority,
responsibilities or duties immediately prior to such change; provided that for
purposes of this subsection, in addition to any other change in title,
authority, responsibilities or duties, the following changes shall constitute an
event of “Good Reason”: (X) an individual who held a position in an independent,
publicly held company prior to the Change in Control holds a position in a
subsidiary company following the Change in Control; and (Y) an individual who
reported directly to the board of directors of a publicly held company prior to
the Change in Control reports to an entity that is not the board of directors of
a publicly held company;

(iii) the relocation of Executive’s principle workplace to a location greater
than fifty (50) miles from the prior workplace;

(iv) any material breach by the Company of any provision of this Agreement,
which breach is not cured within thirty (30) days following written notice of
such breach from Executive;

(v) any failure of the Company to obtain the assumption of this Agreement by any
successor or assign of the Company; or

(vi) any purported termination of Executive’s employment for “material breach of
contract” which is purportedly effected without providing the “cure” period, if
applicable, described in Section 7(a)(vi), above.

 

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For the purposes of any determination regarding the existence of Good Reason
hereunder, any claim by Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Board that Good Reason does not
exist, and the Board, acting in good faith, affirms such determination by a vote
of not less than two-thirds of its entire membership.

(f) “Incumbent Directors” shall mean members of the Board who either (i) are
members of the Board as of the date hereof, or (ii) are elected, or nominated
for election, to the Board with the affirmative vote of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of members of the
Board).

(g) “Involuntary Termination” shall mean the occurrence of one of the following:

(i) termination by the Company of Executive’s employment with the Company for
any reason other than Cause at any time;

(ii) Executive’s resignation from employment for Non Change in Control Period
Good Reason within six (6) months following the occurrence of the event
constituting Non Change in Control Period Good Reason; or

(iii) during a Change in Control Period, Executive’s resignation from employment
for Change in Control Period Good Reason within six (6) months following the
occurrence of the event constituting Change in Control Period Good Reason.

(h) “Non Change in Control Period Good Reason” shall mean any of the following
conditions first occurring outside of a Change in Control Period and occurring
without Executive’s written consent:

(i) a decrease in Executive’s Base Salary of greater than 20%;

(ii) a material, adverse change in Executive’s title, authority,
responsibilities or duties, as measured against Executive’s title, authority,
responsibilities or duties immediately prior to such change. For purposes of
this subsection, a material, adverse change shall not occur merely by a change
in reporting relationship; or

(iii) any material breach by the Company of any provision of this Agreement,
which breach is not cured within thirty (30) days following written notice of
such breach from Executive.

 

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For the purposes of any determination regarding the existence of Non Change in
Control Period Good Reason hereunder, Executive shall bear the burden of
demonstrating that an event of Non Change in Control Period Good Reason has
occurred. Only the Board, acting as a majority, may determine that an event of
Non Change in Control Period Good Reason has not occurred; the Board must act
within five business days of notification from Executive, or the Executive’s
claim shall be deemed valid.

(i) “Permanent Disability” shall mean Executive’s permanent and total disability
within the meaning of Section 22(e)(3) of the Code.

(j) “Release” shall mean a general release of all known and unknown claims
against the Company and its affiliates and their stockholders, directors,
officers, employees, agents, successors and assigns substantially in a form
reasonably acceptable to the Company, which has been executed by Executive and
not revoked within the applicable revocation period.

8. Insider Trading Policy: Executive agrees to abide by the terms and conditions
of the Company’s Insider Trading Policy, as it may be amended from time to time.

9. Dispute Resolution: In the event of any dispute or claim relating to or
arising out of this Agreement (including, but not limited to, any claims of
breach of contract, wrongful termination or age, sex, race or other
discrimination), Executive and the Company agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in New York, New York in accordance with its National
Employment Dispute Resolution rules. Executive acknowledges that by accepting
this arbitration provision he is waiving any right to a jury trial in the event
of such dispute. In connection with any such arbitration, the Company shall bear
all costs not otherwise borne by a plaintiff in a court proceeding.

10. Attorneys’ Fees: The prevailing party shall be entitled to recover from the
losing party its attorneys’ fees and costs incurred in any action brought to
enforce any right arising out of this Agreement. The Company shall pay
Executive’s reasonable legal fees in connection with the review and negotiation
of this Agreement and any ancillary services related thereto.

11. General.

(a) Successors and Assigns: The provisions of this Agreement shall inure to the
benefit of and be binding upon the Company, Executive and each and all of their
respective heirs, legal representatives, successors and assigns. The duties,
responsibilities and obligations of Executive under this Agreement shall be
personal and not assignable or delegable by Executive in any manner whatsoever
to any person, corporation, partnership, firm, company, joint venture or other
entity. Executive may not assign, transfer, convey, mortgage, pledge or in any
other manner encumber the compensation or other benefits to be received by him
or any rights which he may have pursuant to the terms and provisions of this
Agreement.

 

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(b) Amendments; Waiver: No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by Executive and by an authorized officer of the Company. No
waiver by either party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party shall be considered a waiver of
any other condition or provision or of the same condition or provision at
another time.

(c) Notices: Any notices to be given pursuant to this Agreement by either party
to the other party may be effected by personal delivery or by overnight delivery
with receipt requested. Mailed notices shall be addressed to the parties at the
addresses stated below, but each party may change its or his address by written
notice to the other in accordance with this Paragraph:

Mailed notices to Executive shall be addressed as follows:

To the last known address provided by Executive to the Company,

with a copy to:

Shearman & Sterling

599 Lexington Avenue

New York, New York 10022

Attention: Doreen E. Lilienfeld

Mailed notices to the Company shall be addressed as follows:

E*TRADE Financial Corporation

671 North Glebe Road

Arlington, VA 22203

Attention: General Counsel

(d) Entire Agreement: This Agreement constitutes the entire employment agreement
between Executive and the Company regarding the terms and conditions of his
employment, with the exception of (i) the Agreement Regarding Employment and
Proprietary Information and Inventions between the Company and Executive,
(ii) any stock option, restricted stock, restricted stock unit award or other
Company stock-based award agreements between Executive and the Company to the
extent not modified by this Agreement, (iii) any indemnification agreement
referenced in Section 1 and (iv) the Company’s employee benefit plans referenced
in Section 3(c). This Agreement (including the documents described in
(i) through (iv) herein) supersedes all prior negotiations, representations or
agreements between Executive and the Company, whether

 

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written or oral, concerning Executive’s employment by or service to the Company,
including, without limitation, the letter agreement dated December 7, 2007
between Executive and the Company.

(e) Withholding Taxes: All payments made under this Agreement shall be subject
to reduction to reflect taxes required to be withheld by law.

(f) Counterparts: This Agreement may be executed by the Company and Executive in
counterparts, each of which shall be deemed an original and which together shall
constitute one instrument.

(g) Headings: Each and all of the headings contained in this Agreement are for
reference purposes only and shall not in any manner whatsoever affect the
construction or interpretation of this Agreement or be deemed a part of this
Agreement for any purpose whatsoever.

(h) Savings Provision: To the extent that any provision of this Agreement or any
paragraph, term, provision, sentence, phrase, clause or word of this Agreement
shall be found to be illegal or unenforceable for any reason, such paragraph,
term, provision, sentence, phrase, clause or word shall be modified or deleted
in such a manner as to make this Agreement, as so modified, legal and
enforceable under applicable laws. The remainder of this Agreement shall
continue in full force and effect.

(i) Construction: The language of this Agreement and of each and every
paragraph, term and provision of this Agreement shall, in all cases, for any and
all purposes, and in any and all circumstances whatsoever be construed as a
whole, according to its fair meaning, not strictly for or against Executive or
the Company, and with no regard whatsoever to the identity or status of any
person or persons who drafted all or any portion of this Agreement.

(j) Further Assurances: From time to time, at the Company’s request and without
further consideration, Executive shall execute and deliver such additional
documents and take all such further action as reasonably requested by the
Company to be necessary or desirable to make effective, in the most expeditious
manner possible, the terms of this Agreement and to provide adequate assurance
of Executive’s due performance hereunder.

(k) Governing Law: Executive and the Company agree that this Agreement shall be
interpreted in accordance with and governed by the laws of the State of New
York.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year written below.

 

Date: March 2, 2008   E*TRADE Financial Corporation   By:  

/s/ Ronald D. Fisher

  Name:   Ronald D. Fisher   Title:   Board Member Date: March 2, 2008  

/s/ Donald H. Layton

  Donald H. Layton

 

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