Performance-Based Equity Compensation
When cash alone is no longer enough to retain key leaders.
Is equity compensation the right tool for your company?
Before equity becomes part of your compensation strategy it's important to identify the problem you're trying to solve. You may discover the real issue is decision making authority, career development opportunities or clarity in their role.
At this stage we help you think clearly about how equity compensation fits your business today, or whether something else needs to be addressed first.
Why Owners Consider Equity Compensation
Long-Term Alignment
As businesses grow more complex, owners often look for ways to align senior leaders with long-term outcomes. Like a three-year target or even an exit. When leaders are acting like owners, equity compensation can create alignment on financial results, capital risk, and benefits of growing business value.
Retaining Leaders Through Growth and Change
During periods of growth, transition, or uncertainty, equity compensation can be used to retain people whose knowledge and relationships are difficult to replace. For some owners, it becomes a way to reinforce commitment when the business is asking for more from its leadership team.
Shifting Responsibility
Equity compensation is often explored when owners want senior leaders to take on greater responsibility for decisions and ownership-level roles. With thoughtful development, the owner can shift roles to the leader, and the plan design can be structured to reduce defection risk by using vesting schedules and deferred payout events.
What owners say after working through these decisions
“The McFarland Group's guidance played a meaningful role in the outcome we achieved. They helped us think through complex decisions thoughtfully and stayed closely engaged throughout the process. That perspective and steadiness made a real difference in how confident we felt moving forward.”
Kyle Remont
Founder & President, Red Group
What Must Be True for Equity to Work
Clear Performance Standards
Equity compensation works when performance expectations are clearly defined and consistently enforced. If roles, decisions, or success metrics are unclear, participants can lose motivation to achieve the most important goals of the company.
Leadership Maturity and Ownership Mindset
Participants must demonstrate the capacity to think beyond their individual role and consider the broader impact of their decisions on the business. Without that maturity, equity often results in entitlement rather than an ownership mindset.
Financial and Structural Discipline
Equity works when the business is genuinely committed to the outcome. That commitment shows up in two places: financial discipline to sustain the plan over time, and a clear communication rhythm to monitor progress, reinforce expectations, and keep leaders aligned with the goal.
Getting these elements right creates sustainable alignment between ownership and leadership.
What owners say after working through these decisions
“They took the time to understand our situation and ask the right questions before offering recommendations. That approach helped us evaluate myriad options and design an equity plan that fit our business and motivated our leadership team.”
Matt Strippelhoff
Co-Founder, Redhawk Technologies
A thoughtful conversation when the stakes are high.
If you're considering equity compensation or simply trying to understand whether it's appropriate for your business, the next step doesn't need to be a decision. It can begin with a conversation.
Related Resources
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