One of the most common questions we’re asked is: How do you set up an Enterprise Management Incentive (EMI) scheme that truly works?

It’s an important topic. The right EMI plan can align and retain your senior leadership team, ensuring they’re motivated to deliver long-term value. But there’s a delicate balancing act – while you want to reward and incentivise key people, you also need to avoid diluting the founders’ equity so much that your own rewards are diminished.

The Problem with a Fixed Option Pool

A typical approach is to create a fixed option pool (often around 10%) and distribute this to the senior management team. While simple, this can be limiting. A flat structure doesn’t account for how the company’s needs and priorities evolve as it grows, or how different contributors may have the most impact at different value stages.

The Ratcheted Share Approach

An alternative, and one we’ve successfully implemented ourselves, is to design a ratcheted share structure within your EMI scheme. Here’s how it works:

1. Create Multiple Share Classes

Start with founder shares, then create additional share classes (A, B, C, etc.) with different rules.

2. Set Value-Based Triggers

Decide which shareholders participate at each valuation band. For example:

  • £0–£2 million: 100% of proceeds go to the founders.
  • £2–£5 million: Specific team members receive agreed percentages from this value band e.g., Employee X gets 10%, Employee Y gets 5%, Employee Z gets 2.5%.
  • £5–£20 million: Introduce more participants and increase dilution, ensuring those driving the next stage of growth share in the upside.

3. Align Rewards with Growth Milestones

As the company grows, the value of the pool available to employees increases. This not only motivates your team to hit higher valuation milestones but also protects the founders’ position in the early stages.

Why It Works

This approach allows you to:

  • Incentivise your team at the right times.
  • Protect founder equity in the early phase.
  • Increase rewards as company value grows and risk decreases.
  • Keep senior leadership motivated for the next big milestone, not just the exit.

We’ve seen this work exceptionally well, both in our own businesses and in many of the companies we advise. As the value ratchets up, more of the upside is shared, creating a win-win for everyone involved.

If you’re considering an EMI scheme and want to make sure it works for both you and your team, a ratcheted structure could be the answer.