Structuring Incentive Equity in Private Equity-Backed Companies
Vesting and Forfeiture, Distributions, Restrictive Covenants, Repurchase Rights, Monetization and Liquidity
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Banking and Finance
- event Date
Tuesday, January 7, 2025
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE webinar will discuss the structuring of equity-based incentives in companies that have private equity investment. The panel will discuss design considerations and standard features of equity and equity-based compensation programs, including vesting and forfeiture, distributions, restrictive covenants, repurchase rights, and monetization events and liquidity opportunities. The panel will provide information helpful to companies that are private equity-backed, as well as those that are seeking private equity investment.
Mr. Hudesman focuses his practice on executive compensation and employee benefits issues arising in the context of a wide range of transactions, including high-profile mergers and acquisitions, spin-offs and initial public offerings, among others. He regularly advises public and private companies on a broad range of employment, compensatory and benefit matters including the design, negotiation and implementation of employment and separation arrangements, cash-based and equity-based incentive plans, golden parachute excise tax issues and related employment matters. Mr. Hudesman’s clients span several industries including technology, healthcare, energy and industrials and manufacturing.
Ms. Lucey represents clients across all aspects of executive compensation and other employee benefit matters related to mergers and acquisitions and a variety of capital markets and securities transactions. She has extensive experience advising on executive retention and motivation as well as on equity-based incentives, cash-based incentives, deferred compensation, retirement plans and employment, retention and severance agreements. Ms. Lucey represents private equity investors and their portfolio companies as well as public companies across a wide range of industries including healthcare, technology, infrastructure and business and professional services.
Ms. Moldowan advises companies, boards of directors, executives and investors across a spectrum of transaction-related compensation and benefits matters, with emphasis on issues arising in mergers and acquisitions for public companies and private equity firms, as well as initial public offerings and other capital markets transactions. She also advises on governance, securities laws and disclosure related to public company compensation matters and insider transactions, including beneficial ownership reporting, interactions with regulators and shareholders and the negotiation of executive employment and separation arrangements.
Equity-based incentives can be critical to retaining key personnel and aligning management with a company's private equity investors. But the design, legal considerations, and personal impact on employee participants can be complex.
Private equity investors and company management should have a mutual interest in designing equity incentives that are aligned with a return on investment for the private equity investors and a meaningful opportunity for the participants to share in value creation. Typically, private equity investors will control the decisions regarding the overall size of the incentive equity pool, individual grant size, and terms and conditions of the program. The company's legal structure and organizational documents may limit the equity instruments available for the incentive program, as well as the timing and amounts of distributions and/or liquidity.
A key term of equity award design is the vesting structure. Vesting can be time-based, value-based (or a combination of the two), or event-driven. Companies should consider whether vesting schedules provide employee participants with the incentive to remain with the company, and whether awards can be retained beyond termination of employment or to a future sale. Award design should also keep in mind the potential desire, in a sale context, of a buyer to have management convert (or rollover) a portion of the proceeds from their incentive equity to the post-sale company in order to align their interests with the buyer.
Private equity-backed companies are also starting to implement broad-based employee "ownership" programs, which often take the shape of transaction bonuses tied to company performance at the ultimate exit by the private equity investor. These programs have become popular among U.S. private equity investors and have been a way to recreate the feeling of ownership across the employee base while avoiding significant legal and tax implications of granting "real" equity interests to a broad and often global employee population.
Listen as our authoritative panel discusses these and other issues related to equity-based incentives in private equity-backed companies.
- Overview: goals of PE investors and management in structuring equity incentives
- Vesting schedules and conditions
- Distributions
- Restrictions placed on incentive equity holders
- Repurchase rights
- Monetization and liquidity
- Broad-based employee "ownership " programs
Hear insights from practitioners who are designing and negotiating private equity-backed equity incentive programs on a continuous basis in the real world. The panel will review these and other critical issues:
- How should equity incentives be designed to reflect company performance and value?
- What conditions and restrictions are typically placed on incentive equity?
- What are the potential points of tension between incentive equity holders and private equity investors?
- How much does exit strategy figure into the vesting schedule for incentive equity?
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