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Such income is considered as wages and should be reported on W2.
Your employer will likely withhold taxes at flat rate 25% as for supplemental wages.
At the tax time you will report that income within your total taxable income and taxes will be calculated based on your total income, filing status, deductions, etc.
You may negotiate that payment will be partly in 2008 and partly in 2009 - that will allow to reduce tax pressure, but to find if you will save any taxes - you need to estimate your tax liability.
Generally, if the compensation will be reported on 1099-misc - the IRS will expect self-employment tax - 15.3%.
If your total wages in 2008 is above $102,000 - you will only pay 2.9% Medicare tax.
However as such compensation is in connection with your employment it should be treated the same way as severance pay - that is incorrect to issue 1099-misc. Your employer if audited - may be required to reclassify the payment.