So I know that management equity incentives can be structured in a variety of different ways. What are the most common structures for management equity, and how are the equity incentives funded? Like do you give them illiquid shares upfront, some type of convertible instrument, preferred, etc.?
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I've only modeled out two ways to incorporate management incentives - Management equity and management options. Would also like to know more ways or complicated structures used.
Occasionally you'll see tiered profit sharing - if pe firm makes 2x, then there's some split of the next proceeds up to 2.5x, then some more lucrative split for mgmt, then 3x/4x/whatever
Sweat equity usually goes in at the bottom of the capital stack, so it's usually options or some sort of common equity or phantom stock that turns into common.
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