Buyers will want to know that our core leadership team will stay after the acquisition, but we do not want to hand out cheap equity. How do we structure incentives during our five year runway to lock in these key people?

Question

Tyler Smith · Accepted Answer

You do not need to dilute your equity to secure your key people during a five year exit runway. Giving away actual voting shares often complicates corporate governance and makes a future transaction much harder to close. Instead, look at structured synthetic equity or long term incentive plans, such as phantom stock or cash-settled performance units.

These tools should be directly tied to the growth of your business valuation and your EOS® framework. Align the performance metrics of your incentive plan with the major long term goals on your V/TO®. For example, you can set milestones based on cumulative EBITDA targets or specific operational Rocks that increase company value.

To make this work, the incentive plan must have a vesting schedule that spans your five year runway and includes a stay bonus or accelerated payout upon a change of control. This ensures your key leaders are financially incentivized to help you grow the company, stay through the due diligence process, and assist the buyer during the critical transition period.

By designing a plan where your leaders share in the upside of a clean exit without holding voting shares, you eliminate key-person risk for the buyer while retaining absolute operational control. It aligns everyone on the exact same goal: maximizing the value of the business.