Why Equity Incentives Matter in Consulting

Some time ago, I advised a boutique US consultancy 4 years out from an exit (at the time, we thought 3, but we’ll get onto that). Over the years, it became a high-growth, high-profit firm likely to command a high price in the market.

However, no matter how I phrased it, the owners were incredibly reluctant to share equity with their leadership team. There was always an excuse, but the fundamental problem was the owner mindset which was not uncommon: “We built this company so we want all the rewards. The leadership team are very well paid and they’re lucky to work here”. This attitude is not uncommon, especially among founders who have grafted for years to build a firm that with which their identity is highly entwined.

Eventually, they granted the leaders 1% equity, which equated to a decent, if not life-changing amount of money on predicted exit value. Can you guess what happened?

Of course, in a high growth market, recruiters and competitors will always target the leadership team of a high growth firm. A year before the exit, two of the three key people (outside of the founders) left to competitors who gave them more equity, but also treated them better more generally (‘respect’ was a word I heard a lot when interviewing them).

This of course stalled the exit plans and impacted the sales effort so much so that the growth of the firm also stalled. Once growth stalls, valuation drops and shortlisted buyers can also lose interest. Eventually, the sale was put back by 18 months and, by my estimates, the value of the firm was depreciated by 1.5 x EBITDA – a figure of several million.

So, how can we share equity best, and what do other firms do?

1. How EMI Schemes Work

What is an EMI Scheme?

For consultancies planning a sale or transitioning from a founder-led model, EMI schemes can make the difference between a smooth, high-value exit and a disruptive talent exodus.

Equity incentives, particularly Enterprise Management Incentive (EMI) schemes, offer a strategic way to align leadership teams with long-term success. Unlike cash bonuses, which reward short-term performance, EMI options give senior leaders a direct stake in the firm’s future. This can keep key people engaged, motivated, and committed to sustained growth. It allows consultancies to grant tax-efficient equity options to key employees without triggering heavy income tax or national insurance costs.

For consulting firms, this makes equity a practical tool for attracting, retaining, and motivating senior leaders. Instead of relying solely on salary and bonuses, firms can offer a meaningful stake in future growth.

2. Overcoming Founder Reluctance

Founders often hesitate when it comes to sharing equity. On paper, it makes sense—rewarding key people with a stake in the business should drive motivation and retention. But when the moment arrives to sign over a percentage of the company, doubt creeps in.

One founder I worked with had spent two decades building his consultancy from the ground up. It was his name on the contracts, his reputation that secured the early clients, and his relentless drive that had taken the firm past £8m in revenue. The idea of giving away even a small percentage of equity felt like handing over a piece of himself.

The Emotional Hurdle

Many founders see it as their life’s work, a reflection of their own expertise and effort. Parting with equity can feel like losing control of something deeply tied to their identity.

But holding on too tightly can backfire. If key people don’t see a future in the business—one where they share in its success—they’re more likely to leave at the worst possible moment. And when senior leaders walk out the door just as a firm is gearing up for an exit or transition, the damage can be severe.

The Dilution Dilemma

Some founders worry about giving away too much reward. “I already pay them well,” they argue. “Why should I hand over part of the company on top of that?”

The answer lies in the pie analogy – overused but true. Would you rather own 100% of a £10m firm or 80% of a £30m firm? A well-structured EMI scheme creates an ‘ownership mindset’ that drives growth. The data backs this up: research from the Employee Ownership Association (EOA) shows that businesses with shared ownership models tend to perform better, with increased retention, engagement, and profitability.

Control Concerns

Equity often comes with a voice in decision-making. Founders who have spent years making unilateral calls might fear that giving away equity means losing authority.

But the right scheme structure can ensure that key decisions remain in trusted hands while still giving senior leaders a meaningful stake. A good founder will want to be handing over operational control of the company anyway as this will increase their valuation and reduce their earn-out.

3. How Much Equity Should You Give?

Buyers of consulting firms like to see around 20% of equity distributed among the senior team. But this isn’t something to give away all at once. A phased approach allows firms to adjust allocations as they grow and ensure they have room to incentivise key individuals further down the line.

Typically, consultancies start with 0.5–2% per senior leader. For mid-sized firms targeting a £25m exit (e.g., £3m EBITDA on a £12m revenue business), a £250k EMI payout per senior leader has become a common benchmark. This usually translates to around 1% equity per key individual.

Firms that align their EMI plans with this approach find it provides a strong incentive for senior leaders to stay engaged, drive performance, and contribute to a successful exit.

While 1–2% per senior leader is a solid guideline, some cases justify higher allocations.

Key Individuals

Not all leaders contribute equally. Some are critical to client retention, sales growth, or intellectual property. If a particular leader leaving would cause a material drop in revenue, offering 2%+ may be necessary to secure their commitment.

High-Growth Sectors

Consultancies in high-growth niches—like tech, financial services, or specialised advisory—often offer larger EMI allocations. These firms tend to scale quickly, and the talent they need is highly mobile. In these cases, a larger share can help secure the right people.

Competitive Talent Markets

Senior consulting talent is in high demand. In markets where experienced leaders have multiple options, an EMI scheme that offers a meaningful stake can tip the scales.

4. Does EMI Actually Work? The Evidence

The concept of equity incentives sounds great, but does it actually lead to better business outcomes? The research suggests it does.

Broader Research on Employee Ownership

Studies from the Employee Ownership Association (EOA) highlight clear benefits:

• Higher retention – Employees with a financial stake stay longer.
• Greater productivity – An “ownership mindset” encourages long-term thinking.
• Improved profitability – While correlation doesn’t equal causation, firms with employee ownership consistently outperform their peers.

EMI-Specific Indicators

• HMRC Data: The increasing adoption of EMI schemes suggests that high-growth SMEs see them as essential for talent retention.
• Consulting Firm Feedback: Firms regularly report that EMI grants, particularly those tied to a future exit, help prevent turnover and sustain motivation.

Common Pitfalls to Avoid

• Misalignment with Strategy: EMI options should be linked to firm-wide goals like revenue growth, profitability, or a successful sale.
• Lack of Transparency: If employees don’t understand why some receive more equity than others, resentment can grow.
• Over-Reliance on Equity: EMI should be a complement, not a replacement, for competitive pay and bonuses.

5. How to Structure an Effective EMI Scheme

Structuring an EMI Scheme That Actually Works

When an EMI scheme should create a direct link between leadership performance and long-term business success. But too often, firms rush into equity grants without thinking through the mechanics—leading to resentment, misalignment, or worse, leaders cashing out and walking away before they’ve delivered real value.

Vesting Should Follow Strategic Goals, Not Just Time

A common mistake is tying vesting purely to tenure—rewarding employees simply for sticking around. The best EMI schemes go beyond that, linking equity awards to clear business milestones.

For example, one consultancy set a £3m EBITDA target as a vesting trigger for its senior team. Instead of receiving their full equity stake immediately, leaders earned portions as they hit agreed revenue and profitability goals. The result? A leadership team that wasn’t just staying put but actively pushing the business towards a higher valuation.

By anchoring vesting to tangible business achievements—whether it’s reaching a revenue threshold, maintaining a high client retention rate, or securing a successful exit—you ensure that equity is earned.

Explain Allocations – and their value!

Few things create internal tension faster than secrecy around equity awards. If some leaders receive more than others, there should be a clear rationale – whether it’s based on role, seniority, or individual contribution to firm growth.

Clear communication prevents resentment and keeps the focus where it should be—on growing the business, not on questioning internal decisions.

Stagger Equity to Keep People Focused on the Long Game

No founder wants to hand over equity only to see a key leader take the payout and disappear. That’s why many firms use staged vesting, where shares are released in tranches over time or tied to incremental performance milestones.

A consulting firm I’m currently advising structured its EMI scheme in three tranches—the first third vested after three years, the second at the point of sale, and the final portion only after the new owners’ transition period was complete. This kept senior leaders motivated not just to sell, but to ensure a smooth post-sale handover—a crucial factor in achieving a higher exit multiple.

A great EMI scheme isn’t static. As the firm scales, client demands shift, and new leaders emerge, the equity pool may need to be revisited. Firms that review their allocations regularly can adjust incentives based on evolving business priorities, ensuring that the EMI scheme remains both competitive and aligned with the firm’s strategic direction.

6. Key Takeaways

A well-structured EMI scheme should create a clear, fair, and motivating plan that aligns leadership incentives with business success. Tie it to performance, communicate it clearly, structure it to retain key talent, and review it as the business evolves. Get these elements right, and your EMI scheme will drive real, measurable growth.

• 1–2% per senior leader is typical, with a total EMI pool of 15–20%.
• £250k at exit is a strong benchmark for mid-sized consultancies.
• Overcoming founder reluctance is key – equity sharing often leads to a bigger total exit value.
• EMI works best alongside competitive pay and clear strategic alignment.