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The LTIP conversation is one of the most consequential discussions a CFO will have during a PE-backed tenure. It sets the terms of the financial relationship between the individual and the investment. It shapes behaviour, drives retention, and — when it goes wrong — becomes the single most cited reason why a high-performing finance leader walks out the door before the exit is complete.
And yet, in Esker's experience, it is one of the least well-prepared conversations on both sides of the table.
CFOs arrive under-briefed on the mechanics and insufficiently clear on what they need. Sponsors arrive with a standard structure and limited appetite to deviate from it. The result is an agreement that satisfies neither party at the moment of signing and actively damages the relationship when business conditions change — as they always do.
This piece is written for both sides. Because the ultimate objective of an LTIP is not to satisfy a negotiation. It is to create alignment. And alignment requires both parties to show up to the conversation with clarity, honesty, and a shared understanding of what the structure needs to achieve.
The purpose of a long-term incentive plan is not to reward the CFO for doing their job. It is to align the CFO's financial interest with the sponsor's exit outcome.
1. Understand what the LTIP is actually for — before you discuss the numbers
The purpose of a long-term incentive plan is not, fundamentally, to reward the CFO for doing their job. It is to align the CFO's financial interest with the sponsor's exit outcome. That distinction matters.
A well-designed LTIP answers one question above all others: does this structure give the CFO a genuine, meaningful stake in the value creation journey from entry to exit? If the answer is yes, the plan is doing its job. If the structure is so heavily back-weighted, so dependent on scenarios that feel remote from day one, or so diluted by the time it reaches the CFO that the connection between effort and reward is invisible — the plan is decorative.
Before any number is discussed, both sides should be able to articulate clearly what the LTIP is designed to incentivise, over what timeframe, and under what exit scenarios the CFO would consider themselves fairly rewarded for the contribution they made. That conversation rarely happens. It should always happen first.
2. Do your diligence on the investment thesis — not just the headline valuation
CFOs entering a PE-backed role often focus their pre-appointment diligence on the business: the sector, the management team, the financials, the growth trajectory. What they frequently underweight is a rigorous assessment of the investment thesis itself — and what that thesis implies for the shape of their equity.
The entry multiple matters. The leverage structure matters. The sponsor's track record on hold periods matters. The planned exit route matters. A CFO who joins a business at a high entry multiple, with significant leverage, targeting a trade sale in a compressed timeframe, is operating in a fundamentally different equity environment from one joining a lower-multiple platform with a buy-and-build thesis and a five-to-seven year horizon.
Spend time understanding the waterfall. Model your own scenarios. Know what the equity is actually worth at a range of exit valuations before you sit down to negotiate. Sponsors respect CFOs who arrive at this conversation prepared. It signals exactly the kind of commercial rigour the role demands.
3. The most dangerous assumption is that the plan as written reflects the plan as intended
LTIP documentation is complex. The gap between what both parties believe they have agreed and what the legal documentation actually says is, in Esker's experience, a more common source of mid-hold friction than almost any other single factor.
Vesting schedules, good leaver and bad leaver provisions, ratchet mechanisms, anti-dilution protections, change of control clauses — each of these has meaningful financial consequences that are not always surfaced clearly during the negotiation itself. A CFO who has not taken independent legal and financial advice before signing is operating on trust rather than understanding.
Take the advice. It is not a sign of distrust in the sponsor. It is a sign of commercial maturity — precisely the quality the sponsor is paying to have in their finance leader.
Equally, sponsors should actively encourage incoming CFOs to take that advice. An LTIP that is properly understood by both parties at inception is far less likely to become a source of grievance when circumstances change.
Alignment is not a set-and-forget exercise. It requires active management as the investment evolves.
4. Extended hold periods are no longer the exception — build for them
The private equity market has been operating in a prolonged period of exit uncertainty. Hold periods that were structured around a four-to-five year horizon have in many cases extended to seven, eight, or beyond. For a CFO whose equity value is heavily concentrated at the back end of that timeline, an extended hold is not just a commercial inconvenience. It is a direct impact on their financial position and, in many cases, their willingness to remain in the role.
Both sides need to address this directly in the LTIP conversation, not hope that it won't arise.
For CFOs: ask explicitly how the structure performs under an extended hold scenario. What happens to vesting if the exit timeline moves by two years? Is there any mechanism to recognise sustained contribution over a longer period? These are not unreasonable questions. They are prudent ones.
For sponsors: a CFO who feels financially trapped in an extended hold — contributing at the highest level while watching their equity value stagnate — is a CFO at significant flight risk. The cost of restructuring an LTIP to retain a high-performing finance leader through an extended hold is a fraction of the cost of replacing them at a critical stage of the investment.
Alignment is not a set-and-forget exercise. It requires active management as the investment evolves.
5. The conversation that doesn't happen at appointment will happen at the worst possible moment
The single most consistent theme in CFO departures from PE-backed businesses is not capability. It is not market conditions. It is unresolved expectations — compensation, role scope, board dynamics, resource allocation — that were not surfaced clearly at the point of appointment and festered until the relationship became irreparable.
The LTIP conversation is the clearest opportunity both sides have to establish genuine transparency about what each party expects, what they are prepared to commit to, and where the boundaries of the arrangement lie. Sponsors who treat this as a standard process to be completed quickly are storing up problems. CFOs who accept ambiguity because they are excited about the role are doing the same.
The questions that feel uncomfortable to ask at appointment are always more expensive to answer mid-hold.
Ask them now. Insist on clarity. Document what matters. And if the other party is unwilling to engage with that level of transparency before you sign — treat that as important data about what the relationship will look like when the business is under pressure.
A note on remuneration committees
As PE-backed businesses grow in scale and complexity, the question of governance around executive compensation becomes increasingly important — and increasingly under-served.
A properly constituted remuneration committee, with independent perspective and clear terms of reference, provides both the CFO and the sponsor with a structured forum for compensation conversations that would otherwise happen informally, inconsistently, and often badly. It creates a process for reviewing LTIP structures as the business evolves, for benchmarking packages against the market, and for addressing the inevitable moments of misalignment before they become reasons for departure.
For boards and sponsors asking how to reduce CFO turnover: the remuneration committee is an underleveraged tool. Its absence is most keenly felt precisely when you need it most.
Esker works with PE sponsors, boards, and CFO candidates to ensure that the compensation architecture around finance leadership hires is structured for alignment from day one — not renegotiated under pressure mid-hold. If this is a conversation your business needs to have, we are happy to start it.
