Key considerations when designing incentive schemes to support exit success

By Penny de Valk, Associate Director, Equiteq.

Knowledge-intensive services firms can achieve faster growth and reduce founder dependency through diversifying management roles, smart succession planning and equity incentive schemes. These steps support higher future exit values, better deal structures and increase the likelihood of achieving earn out targets if key people are retained and share in the earn out.

From the founder’s point of view, introducing equity incentives will probably be one of the largest investments the company makes so it’s really important to get this right.

Too often tax planning takes crowds out the more important process of designing a commercially effective scheme. Tax is important, but an approach that ensures the growth and exit vision is aligned by evaluating how much value to share, with who and over what time period should come first.

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Why giving away parts of your business could accelerate your growth. Seriously!

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By Jason Parks, Director – Strategic Advisory Services, Equiteq.

Equiteq hosted a webinar on why equity incentivizing your key employees can improve equity value. In this blog, we take a look at some of the questions asked by attendees.

  1. I’d like to motivate my Managing Directors, but I’m nervous about giving too much away.

It’s a mistake to simply view equity schemes with key employees as good as giving away your business.  When done correctly, they can help you grow your consulting firm faster, thus increasing your equity value. Think about it: it’s better to own 70% of a $10m business than 100% of $3m company.

Managing shareholder dilution is important, but I would encourage you to first consider how to get your key personnel aligned with the shareholders’ interests and objectives. That starts with having a clear plan in place.

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