Large corporates and management incentivisation – think like an investor!

24 Juni 2024

In private equity-owned companies, it is common to have a Management Incentive Plan where key employees are awarded shares in the business. This is a tried and proven model, in which the value of these shares will be determined by the growth of the business so that interests are aligned between key employees and investors.

We have recently seen more cases where this model is being adopted by corporate businesses aiming to replicate the success of private equity investors.

Such businesses want their teams to deliver an ambitious growth strategy, and they understand that paying salaries and bonuses alone may not be enough to attract, incentivise and retain the calibre of staff required to produce that outcome.

There is a risk that their most successful operatives may be poached by PE-backed businesses able to offer them the type of rewards that are less likely to be on offer at a company without such schemes.

The good news is that there are ways in which larger organisations can incentivise the managers in their key divisions and subsidiaries by installing a PE-like MIP structure, even if they have no plans to undergo a future sale of that part of the business, or indeed the overall group.

Liberty Corporate Finance is ideally positioned to walk you through the process of putting this type of non-deal MIP into place. We can examine and highlight the factors that will be relevant for your business, understand your commercial objectives, and deliver a framework that makes it possible to create a MIP structure appropriate to your organisation and the people within it.

The questions you need to answer while creating non-deal MIPs

If you are a listed business, a regulated entity or a large corporate considering implementing a PE-style reward structure, you should carefully consider the design of the MIP and the types of instruments you need in order to generate maximum buy-in from your teams.

Will you encourage people to invest in the plan; having “skin in the game”, or make it a free award or help with funding mechanics?

Will your plan run to a fixed timeline or be more phased or even evergreen?  If there is a fixed timeline then when this is reached and the MIP pays out, is there a risk that suddenly all of your enriched senior executives feel the time is right to leave?   Should, as an alternative, payouts be phased over staggered periods, or should you consider the creation of an internal market that facilitates buying and selling discrete portions of the MIP periodically with the overall scheme running with no fixed end point.

How Liberty can help you to plan the right strategy for your business

It’s clear from the conversations we have on a regular basis that there are plenty of corporate organisations that see the benefits of a PE-style MIP, but have no transaction event on the horizon to deliver liquidity to potential participants.

Such companies need guidance on the best way forward. They need to know if a PE-style MIP is appropriate to their business – and, if the answer is yes, how to go about implementing such a plan.

Liberty’s status as an independent adviser means we can give you clarity and the relevant insight that will help you to plot your way forward. Contact us today to find out more.