In today’s highly competitive deal environment, value creation doesn’t stop at acquisition – it begins with alignment. Top-performing private equity (PE) firms are deploying increasingly sophisticated incentive structures to motivate leadership teams, accelerate growth, and capture premium valuations at exit.

Whether driving organic expansion, executing roll-ups, or professionalizing operations, the right incentive plan can transform a good investment into a great one. Based on recent deal case studies and empirical data, here’s a breakdown of what’s working – and why it matters.

Incentives that drive execution

Leading PE sponsors use a toolkit of proven incentive structures tailored to their value creation plans:

1. Management equity plans

Equity participation remains a core lever. Through rollover equity, new grants, or profit interests, management is directly tied to the fund’s MOIC and IRR goals.

In the news: Hellman & Friedman’s investment in Hub International delivered significant management equity upside through multiple recapitalizations – reinforcing growth focus over the long term.

2. Performance-based bonuses

Clear revenue or EBITDA milestones align leaders with near-term execution. These plans are especially effective for commercial teams and unit heads.

In the news: In Thomas Bravo’s $12.3 billion acquisition of Proofpoint, the CEO, CFO, and key executives stood to earn significant payouts through equity awards and retention-related structures, indicating high alignment with performance and deal.

3. Buy-and-build participation

In roll-up strategies, management bonuses tied to sourcing and integrating add-ons have helped drive multiple expansion and operational leverage.

In the news: Beacon Behavioral Partners, backed by Latticework Capital Management and Resolute Capital Partners, completed 11 add-on acquisitions in 2024 alone. These deals emphasize that such add-on strategies are designed to improve operating margins and revenue growth through geographic expansion and service consolidation.

4. KPI-linked operational plans

Tying compensation to operational KPIs like EBITDA margin, working capital turns, or SG&A ratio encourages executional discipline – especially in carve-outs or cost-focused investments.

In the news: KKR’s transformation of Gardner Denver relied on lean ops and tight KPI alignment, leading to a successful IPO and strategic merger.

Smart structuring, stronger results

Other strategies gaining traction include:

• Talent upgrades: Recruiting experienced CFOs, CROs, or COOs, and tying their upside to professionalization goals. (Genstar + Mercer Advisors tripled AUM before partially exiting.)
• Debt paydown milestones: Bonuses tied to FCF, or that leverage targets, can sharpen focus in LBOs and turnarounds. (Platinum + Cision improved attractiveness through debt discipline.)
• Exit bonuses: High-impact retention tools that reward management only when value is realized. (Vista’s exit with Marketo generated large payouts over three times the return.)
• Broad-based equity participation: Programs like Blackstone’s Copeland and KKR’s GSI have delivered engagement boosts and substantial financial rewards to rank-and-file teams – enhancing culture and retention.

What the data says

Research supports what PE sponsors have observed firsthand:

• Higher alignment = stronger outcomes: NYU Stern CSB studies show PE-backed managers with equity outperform their public  EBITDA
• Exit-linked incentives improve retention and culture: KKR’s GSI saw turnover drop from around 50% to 17% pre-exit percentile points.
• Broad-based plans outperform narrow ones: Research shows ROE and innovation performance improve with wider employee ownership.

Choosing the right mix

Incentive plans must be tailored to fit the investment strategy:

Final thought

Incentive design is no longer an afterthought – it’s a value creation strategy. The most successful PE firms are aligning performance with payout, tailoring plans to their investment thesis, and backing it all with data and discipline.

Great deals don’t just reward capital – they reward execution. And the best incentive plans make sure everyone is rowing in the same direction.