- Topic
- Capital
- Published
- 18 November 2025
- Reading time
- 5 minutes
- By
- Everston Partners
In short
- Management equity usually means a pool of around 10 percent of the company, shared among the leadership team.
- The research is encouraging but mixed. Ownership helps most when people also have a real say in decisions.
- We keep a meaningful share with management, put the terms in writing on day one, and leave room for the people who join later.
Ask a leadership team how they would spend the company's money, and then ask how they would spend their own. The answers are usually different. Management equity is a way of narrowing that gap, so that the people making decisions about spending, hiring and risk share in what those decisions produce.
What it is, in practice
In a private equity transaction, management equity is a pool of shares or share-like rights set aside for the leadership team. According to a 2023 comparison by the law firm Davis Polk, the pool in a US deal is around 10 percent of the company, and in the UK it is typically 10 to 20 percent. Most of it, 70 to 80 percent, is allocated at or soon after the acquisition, and the rest is held back for people who join or are promoted later. The CEO usually receives 20 to 25 percent of the pool.3
The equity usually carries conditions. Davis Polk notes that roughly a third of it typically vests with time in the US, and that someone who leaves on bad terms generally forfeits it at the lower of cost and market value.3 These details sound technical, but they decide whether the equity feels like a partnership or a trap.
What the research says
The evidence is encouraging but not as clean as the sales pitch. Most of the research studies broad employee ownership, not executive pools, so we read it as a guide and not as proof.
Douglas Kruse and Joseph Blasi reviewed 27 studies of ownership and company performance. Few individual studies clearly linked ownership to better results, but the reviews that combined many studies found an overall positive association. Ownership also tended to raise commitment. The effect depended on the company: ownership did best alongside real participation in decisions and sound people practices.1
Later work points the same way. A 1987 study by Michael Rosen and Michael Quarrey found that companies with employee ownership grew faster after adopting it, and only the most participatory companies grew 8 to 11 percent a year faster. A 2013 study of 300 private companies found that those with employee ownership plans were half as likely to go bankrupt or close than similar companies without them.2 Correlation is not causation, since healthy companies may be the ones that offer equity. The researchers say so themselves.
Why the terms matter more than the number
A bigger pool does not by itself make a better team. A pool that goes entirely to the CEO leaves the rest of the leadership team with nothing to share. A pool that is fully allocated on day one leaves nothing for the person you hire in year three.
And vesting or leaver terms that surprise people halfway through turn goodwill into a negotiation.
What we do about it
- We keep a meaningful share of every investment with management.
- We agree the terms in writing at the start, so nobody is negotiating their future halfway through.
- We hold part of the pool back for the layer below the CEO and for the people who will join later.
- We explain vesting and leaver terms in plain language before anyone signs.
Key takeaway: equity changes behaviour when people understand it, share it fairly and have a say in the decisions it rewards.
If you are planning how your leadership team should share in what comes next, we would like to hear from you.
Sources
1. Douglas Kruse and Joseph Blasi, "Employee Ownership, Employee Attitudes, and Firm Performance," NBER Working Paper 5277, September 1995. Read the paper
2. National Center for Employee Ownership, "Research on Employee Ownership and Corporate Performance," summarising Rosen and Quarrey (Harvard Business Review, 1987) and Blasi, Kruse and Weltmann (2013). Read the summary
3. Adam Kaminskyy and Neil Sharpe, "Incentivising management teams following an acquisition: comparing UK and US practice," Davis Polk, September 2023. Read the article