Profit Interest Plan
An equity-based compensation strategy option.
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How a PIP solution can retain key talent.
A Profit Interest Plan (PIP) is an equity-based compensation LTIP strategy option for consideration. PIPs are designed similar to private equity incentive plans and are based on reaching company planned KPIs.
A PIP is typically used by partnerships and LLCs to grant employees a share of future profits and appreciation in company value without giving them ownership stake. A PIP does not provide recipients with rights to existing company value but instead, rewards for future growth.
Plan Design Options
Contribution Amount
- Flat dollar amount, % of salary, bonus and/or total compensation.
- Percentages can vary by years of service (YOS), company and/or individual
performance (ROA, ROE, net income). - Percentage of EBITDA or increase in company value and stock appreciation rights (SARs)
- Competitive LTIP plan recommended levels*
- C-Suite: 60% – 80%
- VPs: 35% – 55%
- Directors: 25% – 45%
Payouts
- Vesting may vary based on executive.
- YOS and past YOS may be taken into consideration.
- Class year vesting or account balance vesting.
- Ability to control asset allocation of vested amounts.
- Credit interest based on performance of institutional managers including company stock growth given.
Vesting and Earnings
- Upon retirement age
- Upon vesting
- Upon achieving a certain number of YOS
- Patial payouts upon vesting
- Multiple payout paths available