Proven Equity Structures to Keep Employees Before, During, and After a Sale
Buyers don’t just purchase your revenue and profits. They buy your trusted client relationships, your team, and the intrinsic value of a stable, growing business. The stronger the team, the higher the valuation. Therefore, attracting and retaining exceptional employees is the underpinning of your valuation and perhaps your net worth.
The most successful owners use equity arrangements to create clear incentives that align their key people with the firm’s growth objectives—and reward them with some of the value that will ultimately be realized in a transaction.
The right approach to sharing equity value can help you win and retain talent, reassure your team, and strengthen your negotiating position with buyers — assuring a positive return on the investment you make in them.
The Risk of Key Employee Turnover
For most independent insurance and employee benefits brokerages, a handful of producers, account managers, and operational leaders drive a disproportionate share of the results.
When key employees are uncertain about their future or sense the “grass may be greener” elsewhere they can become distracted, demotivated, or even start looking for other opportunities.
Buyers know this. When those individuals are not locked in, the perceived risk increases—and the value buyers are willing to pay often decreases. Even one key departure during the sale process can slow negotiations or alter deal terms.
Retaining key employees before, during, and/or after a deal is crucial. Following are seven equity structures owners can use to create loyalty and inspire employees to earn ownership.
Types of Equity Incentives for Employees
Not all equity plans are created equal. Each has advantages—but also tradeoffs that matter when the goal is retaining and motivating key employees. Here are the main types, including some lesser-known options of which owners are typically not aware:
1. Profits Interest or Phantom Equity
With this option, employees receive the right to share in future profits and appreciation but not current equity. It offers upside participation tied to performance or time-based vesting, typically without upfront cost or dilution until a sale. It can mirror actual equity value without giving voting rights, making it a practical way to reward performance while maintaining full control of the business.
2. Stock Options (Incentive or Nonqualified)
Stock options give employees the right to purchase shares at today’s value in the future. They can be structured so the value is realized only if growth targets are met—creating motivation to grow the company’s worth. Options may carry favorable tax treatment. They’re especially well-suited for C-Corporations and firms planning for significant expansion.
3. Restricted Stock or “Sweat Equity” Grants
Restricted stock grants provide employees with actual ownership over time or based on results, subject to vesting or forfeiture if targets aren’t met. This creates strong alignment through real equity participation. These shares can be repurchased if an employee leaves early. They may carry tax implications unless an 83(b) election is made. This approach works best when you want team members to have true “skin in the game.”
4. Performance-Based Equity or “Earn-In” Model
With this model, employees earn ownership only after achieving measurable goals such as revenue or EBITDA targets. Equity is awarded in stages, often using a blend of options, phantom equity, or profit interests. It’s ideal for key employees whose direct performance drives company value.
5. Equity Bonus Plan (Synthetic Equity Pool)
An equity bonus plan rewards employees based on the increase in company value, paid out as cash or stock equivalents rather than actual shares. It’s easy to administer, doesn’t alter ownership structure, and simulates the benefits of real equity. This plan is perfect for firms seeking flexibility without adding new shareholders.
6. Co-Investment or Buy-In Opportunity
This option allows senior leaders to buy or earn equity, often at a discounted price, after meeting performance goals in a set period. It reinforces an ownership mindset and can be financed through bonuses or profit distributions. With features like clawback and buyback provisions, it aligns long-term commitment between owner and key executives.
7. Transaction-Based Equity or Sale Participation
A sale participation plan gives employees a share of the proceeds only when the business is sold. It’s tied solely to the enterprise value achieved at exit, avoiding any day-to-day governance or dilution. This structure works well for deal-driven teams and owners who want to reward employees when a successful transaction occurs.
Timing Is Everything
Owners who wait until they’re deep into negotiations to introduce incentive plans often find it’s too late. By then, employees may already feel excluded or uncertain about their role in the company’s future.
The optimal time to implement these programs is 12 to 24 months before a potential sale. That window allows time for key employees to see the connection between their performance and the company’s valuation. It also demonstrates to potential buyers that the team is aligned with the firm’s strategic goals, not just reacting to a pending transaction
Proactive planning sends a powerful signal: this is a business that runs on systems and incentives, not just the owner’s personal relationships. That’s the kind of firm that commands premium valuations.
At Rosen Advisory, we help firm owners design equity and incentive strategies that strengthen engagement, support growth, and enhance valuation. Whether your timeline is two years or ten, the best time to start planning is today.
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