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Structuring Incentive Equity in Private Equity-Backed Companies

Control and Restrictions, Vesting and Forfeiture, Distributions, Repurchase Rights, Monetization

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Tuesday, July 26, 2022

Recorded event now available

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This CLE webinar will discuss the structuring of equity-based incentives in companies seeking or having obtained private equity investment. The panel will discuss standard features of equity compensation provisions, including restrictions other investors might place on incentive equity holders, vesting and forfeiture, distributions, and repurchase rights.


Equity-based incentives can be critical to retaining key personnel when private equity enters the picture. Investors and company management should have a mutual interest in designing equity incentives that are tied to the return on investment received by the equity investors. But the provisions can be complex and must contemplate various scenarios relating to both the employees and the company.

Typically, private equity investors will control the decisions regarding grants, repurchases, and the overall size of the incentive equity pool. Restrictive covenants can include noncompete covenants, nonsolicit agreements, confidentiality agreements, and transfer restrictions, which may extend beyond the incentive equity holder's period of employment.

The company's organizational documents may limit the timing and amounts of distributions. Typical limitations include distributions before the funding of committed capital, distributions made concerning unvested incentive equity, and tax distributions.

Vesting can be time-based, value-based (or a combination of the two), or event-driven. The parties should consider whether vesting schedules (and employee incentives to remain with the company) extend beyond a future sale. Regardless of the vesting provisions, a buyer may want management to convert a portion of the proceeds from their incentive equity to capital interest in the company to align their interests with the buyer.

Listen as our authoritative panel discusses these and other issues related to equity-based incentives in private equity-backed companies.



  1. Overview: goals of PE investors and management in structuring equity incentives
  2. Restrictions placed on incentive equity holders
  3. Vesting schedules and conditions
  4. Distributions
  5. Repurchase rights
  6. Potential points of tension between incentive equity holders and private equity investors


The panel will review these and other critical issues:

  • How should equity incentives be designed to reflect company performance and value?
  • What conditions and restrictions are typically placed on incentive equity?
  • Why might the timing of distributions be tied to the funding of private equity investments?
  • How much does exit strategy figure into the vesting schedule for incentive equity?


McLean, Sarah
Sarah McLean

Willkie Farr & Gallagher

Ms. McLean is a leading private equity lawyer with over 20 years of experience advising private equity funds and...  |  Read More

Meredith, Nathan
Nathan D. Meredith

Shearman & Sterling

Mr. Meredith is a Partner in the Mergers & Acquisitions and Private Equity Practices. His practice focuses on...  |  Read More

Moldowan, Gillian
Gillian Emmett Moldowan

Shearman & Sterling

Ms. Moldowan focuses her practice on compensation, governance and ERISA. She advises on compensation and benefit...  |  Read More

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