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
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