Equity ratchet

Management’s stake grows, or shrinks, with performance against agreed hurdles.

Equity ratchet in round numbers

Hypothetical: a management plan allocates 10% of fully diluted equity initially and 20% if specified exit-performance and vesting conditions are met. Assume the same fully diluted measurement basis and no other issuance; other holders collectively fall from 90% to 80%. Actual hurdles, allocations and dilution depend on the plan.

Sweet equity & envy ratio · Management incentive plan (MIP) · Hurdle rate · Vesting · All of the glossary