Management Incentive Plans (MIPs) align executive rewards with shareholder goals, driving long-term value. FRP helps design and value effective MIPs, combining market insight, defensible valuations and practical guidance. From tax-efficient schemes to bespoke arrangements, we support high-stakes decisions that motivate leadership, protect stakeholder interests and unlock sustainable business performance.
Management Incentive Plans Valuation services
Management Incentive Plans
Practical valuation advice based on expertise and experience
Management incentive plans fall into two categories:
How a management team is rewarded can have a decisive impact on the value a business creates. The right structure aligns the ambitions of key individuals with the priorities of shareholders, driving focus, commitment and long- term performance. The wrong structure risks misalignment, missed targets and lost value. Management Incentive Plans (MIPs) are now a standard tool for linking executive reward to the growth and profitability of a company. In the UK, there is a well- established range of mechanisms, from tax-advantaged share schemes to bespoke growth share arrangements, that can deliver meaningful incentives while protecting stakeholder interests. The challenge lies in selecting and structuring the right plan, securing HMRC clearance where possible, and ensuring the valuation is both defensible and commercially realistic. FRP’s valuation specialists work alongside legal and tax advisers to design, assess and value MIPs that meet these criteria. Our role is to bring robust analysis, market insight and practical guidance to what is often a complex, high-stakes process.
Tax Advantaged Schemes:
Non-Tax Advantaged Schemes: Whilst not having direct tax benefits, schemes can be designed to provide an attractive economic structure by the potential future income to the recipient being materially greater than the value of the awards (and the These have attractive tax benefits such as recipients not paying income tax or national insurance on the value of the awards received. They also have the advantage of ‘pre- transaction clearance’ meaning companies can obtain agreement from HMRC as to the value of the awards before they are issued. tax payable) at the outset, with complete downside protection.
Management Incentive Plans
The most commonly awarded structures are summarised below:
Enterprise Management Incentive (EMI) Plan
An EMI Plan is a tax-advantaged share scheme which is specifically designed for trading companies with high growth potential.
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Company Share Option Plan (CSOP)
A CSOP is a tax-advantaged share scheme which allows companies to grant employees the option to purchase company shares at a predetermined price. It is commonly used when an EMI plan is not an option.
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Growth Shares
Growth shares are a class of share with economic rights such that they are entitled to a share in the company’s equity value over a certain threshold or hurdle.
Joint Share Ownership Plan (JSOP)
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A JSOP is an alternative scheme, commonly used by listed companies for whom creating a separate class of share can be complex.
Management Incentive Plans
Getting MIPs right: Navigating structure, valuation and compliance
MIPs have become commonplace at every level of the growth cycle, and almost ubiquitous in private equity backed companies. Given the central role they play in motivating management to generate business value, the importance of ‘getting them right’ should not be understated. The issuance of a MIP is a transaction in share capital. Given the number of options available and the range of structural considerations, having an experienced team of expert advisors to guide the process is vital.
Significant increase in the use of MIPs, especially among PE and VC backed businesses. A particular rise in growth shares, and an increased variety in the structure of hurdles. The changing stance of HMRC, and the increased sophistication with which they assess value. A standardising of valuation methodologies, but an increased expectation regarding depth of analysis. Increased scrutinisation of MIPs in transaction due diligence to assess potential impact and any compliance issues or risks such as understatement of tax liabilities. Having worked with numerous funds, legal advisors and corporate boards of directors on the valuation aspects of MIPs, we recommend the following as best practice considerations: For several years FRP has provided formal advice and reports on the valuation aspects of MIP awards, working alongside legal and tax advisers. We have seen the landscape evolve as follows:
Advice is typically split into 3 elements:
Award design and legal structure
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Independent valuation
Tax advice
Management Incentive Plans
Early engagement
Thinking forward
Engaging a valuation adviser early enables a clear understanding of the business and the draft award structure, while guiding management in preparing the necessary financial information. This proactive approach helps ensure a smooth and efficient process once the structure is finalised, and keeps initial costs to a minimum by front- loading only essential input.
MIPs are inherently forward-looking, and careful consideration must be given to future profitability, debt levels, exit value and timing. These factors influence both the proceeds award holders may receive and the initial value of the award itself. Hurdle rates, scenario probabilities and delivery risk all play a role, and involving the valuation adviser early in structuring discussions can help avoid surprises later.
Setting a hurdle
Funding the tax
The hurdle should balance ambition with achievability, offering a stretch target alongside meaningful payout potential. Negotiation between recipients and shareholders is common, particularly around hurdle level and exit timing. Valuation advisers can support this process by modelling scenarios across different hurdles, exit values and dates, helping all parties agree on a fair and motivating structure.
More generous awards typically carry a higher upfront tax burden due to the link between hurdle level and initial award value. Clarifying how this tax will be funded - whether by the recipient or via a company loan - is essential to avoid last-minute complications. Addressing this early ensures smoother implementation and reduces the risk of delays or compliance issues.
The valuation of MIPs is a complex area. Our valuation team has the expertise and a strong track record of preparing independent valuations for tax purposes. Please get in touch with either Jim or David if you would like to discuss the valuation of MIPs.
Jim Davies Partner Financial Advisory London +44 (0)7841 829 826 jim.davies@frpadvisory.com
David Blum Director Financial Advisory London +44 (0)7977 244 842 david.blum@frpadvisory.com
Management Incentive Plans
HMRC Shares and Assets Valuation Section HMRC Shares and Assets Valuation section (SAV) is a specialist area of HMRC responsible for assessing the value of unquoted shares for tax purposes. The Shares and Assets Valuation Manual provides guidance on how HMRC assesses the value of shares and assets in unquoted companies for Employment Income, Inheritance Tax and CGT purposes. Pre-transaction Clearance Pre-transaction clearance is available for tax-advantaged share incentive schemes such as EMI Plans and CSOPs. From a practical perspective and to ensure clarity on the outcome, it is essential to pre-agree the valuation with HMRC. The valuation of the awards, usually detailed in a report or letter together with the other relevant documents, should be submitted to SAV. For EMI purposes, a VAL231 form needs to be completed. It is not available for non- tax advantaged share incentive schemes. By getting the value of the share option agreed with HMRC, potential problems down the line can be avoided. This includes, but is not limited to, a tax liability arising should HMRC consider that the exercise price paid for the shares is below the market value at the time of the initial award. Getting a valuation agreed upon by HMRC will typically take 2-4 weeks from date of submission. EMI valuations will be valid for 90 days from the date of the HMRC agreement letter or until a significant event occurs. Significant events include, but are not limited to, a change in the share or loan capital of the company or an arm’s length transaction (completed or actively contemplated) involving shares of the company.
Valuation Methodology It is now well established and expected by HMRC that growth shares are valued using an exit-based methodology i.e. current value is a function of anticipated future value. Two commonly used valuation approaches for growth shares are the Expected Returns approach and an Option Pricing approach. The Expected Returns approach is a probabilistic method which considers numerous iterations of the possible exit value of the company at the time of an exit or liquidity event. For each potential exit value, the amount attributable to the growth shares is then calculated by deducting net debt, and allocating equity value through a hierarchical waterfall which factors in the hurdle allocated to the growth share. This can involve complex calculations and modelling based on different iterations of business forecasts, as well as assessment of the timing of exit and probability of different exit outcomes being achieved. Determining the allocation of sale proceeds arising upon an exit or a liquidity event often requires an analysis of the relevant paragraphs in the Articles of Association. The Option Pricing approach most commonly utilises the Black-Scholes model due to the similarity in its mechanism in that if the share price or exit value fails to hit the exercise price or hurdle, there will be no payoff on the options or growth shares. Conversely, if the share price or exit value exceeds the exercise price, any payoff increases accordingly.
Management Incentive Plans
Minority Discounts Awards made under a MIP will usually be that of a small minority holding where the recipient has less control and influence over the company than a majority owner. This lack of control and marketability makes the recipient’s ownership stake less valuable. To account for this, the final step in the valuation of a minority shareholding is to apply a minority discount. This requires consideration of the specific terms and circumstances of the award, and the range of generally accepted discounts to ensure that an appropriate discount is
applied (thereby avoiding an over or understatement of the value of the awards). The Shares and Assets Valuation Manual no longer prescribes discount ranges according to shareholding size and requires justification of the rationale for the selected discount on a case-by- case basis. Factors to be considered include: the size of the shareholding; the achievability of the hurdle; dividend expectations and the likely timing of exit.
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We deliver independent, accurate, and actionable insights that empower our clients to make informed, value-driven decisions.
Jim Davies
FRP Advisory Trading Limited
110 Cannon Street, London EC4N 6EU
FRP Advisory Trading Limited is a company incorporated in England and Wales registered number 12315855
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November 2025
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