Are exit-only share option schemes still working?

Many share plans are designed with one destination in mind: an exit. 

That might be a trade sale, IPO or another liquidity event where employees can realise the value of their shares or options. For high-growth companies, this approach can work well. It gives employees a clear link between company growth and personal reward. 

Businesses are staying private for longer. Family-owned companies may have no intention of selling. Private equity-backed businesses can hold investments well beyond original expectations. Others continue to grow successfully without ever planning an exit.

But not every successful business exists on the original timeline.

For larger private businesses, founder-led companies, family-owned groups and mature scaleups, an exit may still be possible, but it may no longer be the central assumption behind the plan.

That creates an important question for boards and senior leadership teams: 

Has our equity compensation strategy become too dependent on an uncertain exit event?

The challenge with exit-only plans

Exit-only plans are not inherently flawed. In many cases, they remain the right structure.

However, they can become less effective when no realistic route to liquidity is in sight. Employees may continue to hold valuable awards on paper, but with no practical way to access that value.

Over time, this can weaken the incentive effect of the plan.

Participants may become less engaged with the share scheme. New hires may question whether the award is meaningful. Long-serving employees may start to see their options as theoretical rather than valuable.

For leadership teams comparing equity structures, the issue is not simply whether an exit clause exists. It’s whether the plan gives employees a credible route to value.

How the EMI 15-year window changes the conversation around exit clauses

The recent extension of the Enterprise Management Incentives (EMI) exercise window from 10 years to 15 years gives eligible companies more flexibility.

For businesses that are growing over a longer period, this can be helpful. It reduces the pressure created by a 10-year option term and may allow companies to keep EMI options in place longer without forcing an early redesign.

But the 15-year window does not solve every liquidity issue.

An option may remain tax-advantaged for longer, but employees still need a route to realise value. If there is no exit, buyback, secondary sale or other liquidity mechanism, the underlying commercial issue remains.

For larger businesses, the EMI change should therefore prompt a broader review:

• Does the extended window align with our expected growth timeline?
• Do our plan rules need updating?
• Are the existing options amendable?
• Does the plan still rely too heavily on a future sale?
• What are the reporting implications?
• Should we introduce additional liquidity mechanisms?

Alternatives to waiting for an exit

Where an exit is uncertain, companies may want to explore other ways to create liquidity or preserve flexibility.

These could include:

• Periodic company buybacks;
• internal liquidity windows;
• secondary share sales such as PISCES;
• discretion for the board to create such liquidity opportunities;
• growth share structures, hybrid plans that allow for both exit and non-exit outcomes.

The right answer will depend on the company’s ownership structure, funding, shareholder expectations and tax position.

For some, the best approach may be to keep the exit trigger but add more flexibility. For others, it may be appropriate to design a plan that is less dependent on a sale.

Key considerations for senior leaders

 Before changing an existing plan, companies should review:  

• Current plan rules and award documentation;
• whether participant consent is needed;
• tax implications for employees and the company;
• valuation requirements;
• Investor confidence;
• accounting and reporting implications;
• How will any change be communicated to employees.

This is especially important for EMI options, where amendments should be checked carefully to preserve tax-advantaged status where possible.

Share plans should evolve with your business

An equity plan should not remain frozen around assumptions made five or ten years ago.

For larger private companies, the question is not always “exit or no exit”. It is whether the plan still supports recruitment, retention and long-term alignment.

The new 15-year EMI window allows for more time. But time alone is not the same as liquidity.

Where an exit is no longer clearly on the horizon, leadership teams may benefit from reviewing whether their equity plans need an additional route to value, rather than allowing the scheme to lose relevance over time.

Book in a free, no-obligation consultation with one of our equity specialists today for personalised, expert insights into your options.