- Most vesting schedules are either purely time-based or based on a combination of time and performance.
- Vesting schedules are almost always a non-negotiable part of compensation plans.
- Diligence should play an important part in determining whether a vesting schedule works for you.
For many executives entering or returning to the world of private equity, the equity opportunity is among the top reasons they take on the challenge.
According to PE-CXO’s most recent data, 53% of executives place the most value on equity when they consider an offer, compared to 43% who prioritize salary and just 3% who prioritize their bonus. It’s important for executives, particularly those new to PE, to understand that much of the lucrative potential of a PE-backed executive career lies in equity.
Firms view equity as a driving factor for executive alignment, so they typically use vesting schedules that will drive executive performance. Equity vesting refers to the schedule by which an executive earns their ownership stake in a company.
Each PE firm typically has their own unique vesting schedule that generally applies to all executives managed under the firm. In most cases, these schedules are non-negotiable. Spending valuable time and energy trying to convince sponsors to shorten your vesting period or adjust the plan to your preferences is a less valuable use of your time than evaluating whether the economics and timeline align with your needs.
Most vesting schedules fall into two broad categories:
- Time-based models, which are based on typical PE hold period times.
- Performance-based models, which are based on achieving specific goals or investor return thresholds.
Regardless of whether vesting is time or performance-based, private equity vesting participation tends to be limited to the executive team. When negotiating your package, get clarity on when equity vests, what conditions must be met, and what happens if you leave early or are terminated. These details can materially affect your ...