Management Incentive Plan
Also known as: MIP, Management Equity Plan, Equity Incentive Pool
A management incentive plan (MIP) is an equity pool set aside to reward the leadership team of an acquired company for growing its value after the deal.
A management incentive plan, or MIP, is a pool of equity, often 8 to 15 percent of the company, reserved to incentivize the management team after an acquisition. It aligns the people running the business day to day with the investor’s goal of growing value.
How it works
Managers earn their share of the MIP through options or profit interests that vest over time and pay out when the company is sold or hits performance hurdles. The better the business performs, the more the management team earns.
Why it matters in a deal
In a leveraged buyout, the investor is usually betting on the existing team to execute. A well-designed MIP, often paired with rollover equity, is how that team is kept motivated and retained through the hold period.