What is a management incentive plan (MIP)?
A management incentive plan (MIP) gives a portfolio company's leaders equity or cash awards that pay out from the gain when the owner sells the business. Awards usually vest over several years or at exit, and leaders who leave early may forfeit unvested equity. In a 2018 KPMG survey of UK private equity investors and management teams, investors said they typically set aside at least 10 percent of share capital for management equity.
Why it matters to a revenue leader
For a CRO, the MIP is often the largest part of potential pay, and it pays only when the company is sold. That ties your interest to the sponsor's and changes the math on decisions: growth that holds up in diligence is worth more than one strong quarter. PE investors themselves rank better incentives as a value source; one survey found them cited in 61 percent of deals. Understand the vesting, the leaver terms and how a longer hold or a recap affects your award.
Example
Fictitious numbersA CRO receives MIP units worth 1 percent of the equity gain. The sponsor invests $100M of equity and sells five years later for $260M of equity value. The $160M gain pays the CRO $1.6M, subject to vesting and leaver terms.
"How does my award pay out under a sale, a recap or a longer hold, and what happens if I leave early?"