Management Incentive Plan (MIP)

Definition

An equity-based compensation structure in private equity-backed companies that aligns management's financial interests with those of the PE sponsor by giving managers the opportunity to share in the equity upside upon exit. MIPs typically allocate 10-20% of the equity to management through sweet equity, share options, or ratchet mechanisms linked to achieving specified return hurdles. The design of the MIP is a critical element of PE deal structuring and management retention.