Liquidity is the point – so stop designing infrastructure MIPs as if liquidity is optional

This article builds on a set of MIP themes we've been developing in response to client demand. For another recent take on Management Incentive Plans - MIPs - click here. 

Infrastructure platforms are built to hold and compound value over long periods. Assets rotate, the risk profile reduces, refinancings occur, partial disposals happen and sponsor ownership can reset through continuation structures. Meanwhile, management teams turn over.

And yet the incentive toolkit often sits in one gear: exit-only equity.

That’s not because advisers lack imagination - it’s because exit is the cleanest liquidity event. Equity pays when there is money to pay it with. For most infrastructure platforms, that remains commercially and operationally true.

The real issue isn’t that MIPs are exit-based. It’s that exit-based equity can go stale across long holds - and when it does, you end up trying to solve people problems (retention, recruitment, fairness) with an instrument designed around a single liquidity moment, not an evolving platform.

So the pragmatic objective is simple: keep the plan anchored to real liquidity, but add a small number of mechanisms the business can fund from forecast cashflows that preserve incentive intensity between liquidity events - without triggering tax, accounting or governance headaches.

Why equity goes stale in long-hold infrastructure

“Staleness” isn’t one issue; it’s a bundle.

1) Time kills narrative

A five‑year award that might pay out “sometime after year eight” stops feeling like an incentive and starts feeling like a lottery ticket. People heavily discount it, even when the modelling looks good. Click here and here to discover more. 

2) The entry point becomes historic

Early awards were calibrated to a different risk profile (construction risk vs operational stability), different capital structure (pre/post refinance), and a different return curve. New joiners are asked to buy into a shape that no longer reflects the platform they’re joining.

3) You can't fix it with “cheap” equity

Once an old class is in-the-money, letting later joiners acquire into it at historic pricing is often tax-toxic under the UK employment-related securities regime because you’re effectively gifting intrinsic value at acquisition (with potential PAYE/NIC exposure depending on the facts).

4) Equity misallocates value creation in multi-asset platforms

A single platform-wide pool can feel blunt when value is genuinely created at asset/project level. People will accept complexity; they don’t always accept unfair cross-subsidy.

5) It turns into ‘paper’ value

Even when value is real, it can be inaccessible. Transfer restrictions, leaver mechanics and the absence of interim realisations mean participants can’t bank anything. They discount the equity heavily and retention turns from alignment into lock-in.

What good could look like: the infra incentives stack

The mistake is assuming the answer must be “more equity engineering.” In practice, the strongest infra designs behave like a stack:

• Equity: the long-term alignment backbone (pays on real liquidity)

• Refresh: keeps equity current, fair and recruitable across long holds

• Cash bridge: the in-between retention engine (budgetable, bankable, governable)

• Selective liquidity windows: only where there is a defined funding route

I like the idea of stacks and have written about them before, albeit in a slightly different context. Click here to see more.

Below are three possible approaches that help make this stack design work.

Approach 1 - keep exit‑based equity as the backbone, but build in a rule-based refresh

The operating principle isn’t that equity should become liquid on demand. That isn’t realistic, and it isn’t something most platforms can make work in practice. The proposition is simpler: equity still pays only when real liquidity exists, but the economics stay current, fair and credible to new joiners throughout the life of the platform.

That is the purpose of a refresh. It isn’t synthetic liquidity and it isn’t a disguised payout. It is a governed rebasing exercise that keeps the plan aligned with how the platform actually evolves: refinancings, partial disposals, new capital and continuation processes - the moments where value, risk and capital structures genuinely shift.

To achieve that, a refresh can’t be a philosophical statement. It needs to be a workable mechanism. In practice, the designs that hold up under governance, tax and commercial pressure tend to deliver five things:

1. Resets the starting line for new awards

New grants price off today’s value and hurdle. New joiners don’t inherit legacy economics, and you avoid “tax‑messy” cheap entry into an “in-the-money” class.

2. Recycles leaver equity predictably

You need a dependable mechanism to redeploy forfeited awards without renegotiating every departure.

3. Creates a disciplined top‑up pathway

When the incentive intensity decays, a refresh gives you a governance‑approved route to top up key individuals - avoiding noisy one-off deals.

4. Preserves fairness and defensibility

No backdating. No double-counting the same value event. Materiality thresholds. Clear documentation.

5. Hardcodes valuation and tax hygiene

Each refresh should force a fresh market value (UMV) check and a clean ERS process, so new awards aren’t accidentally “in the money” (and therefore tax-messy) and the board has a defensible paper trail.

What this solves: stale equity, without pretending liquidity exists.

What it doesn’t solve: motivation when liquidity is distant. That is where cash does the work.

Approach 2 - treat cash as a core design feature, not a workaround

If equity only pays on liquidity - and liquidity is uncertain or distant – cash is the practical retention instrument. The question is whether it’s embedded in the design or left as an ad hoc patch.

Strong cash bridges commonly take one of three forms:

Deferred / performance cash bank (often the cleanest)

• Annual cash opportunity tied to operational metrics or project delivery.
• A portion deferred 2-4 years, with malus/clawback and leaver rules.
• Operates as a rolling performance “bank” that smooths long-hold gaps. 

I have written before about “performance banks”. Click here.

Value-linked cash ('synthetic' equity)

• Cash notionally linked to NAV/EV growth or asset outcomes.
• Cash-settled - avoids intrinsic value at grant.
• Usually simpler to govern and easier to explain.

Breakpoint bridge (cash for the “dead zone”)

Sometimes long-term equity technically exists but sits so far below its breakpoint that it provides no meaningful incentive. This “dead zone” can be deliberate (to keep day-one cost and ERS risk manageable). Or it can emerge over time as the funding stack changes - additional preference, debt and resets can push the breakpoint up, leaving a long stretch of value creation that the equity simply doesn’t touch.

A breakpoint bridge fills that hole. It creates a contained, event-linked cash pool that rewards movement from today’s equity value up to the future breakpoint at which refreshed or long-term equity begins to deliver upside. Participants share in that value progression without issuing equity, gifting intrinsic value, or disturbing hurdle mechanics.

It is explicitly a bridge:

• cash recognises the “dead zone” effort;

• equity takes over once the breakpoint is crossed.

The trade-offs are real though. Cash can impact EBITDA (unless structured in a way lenders/sponsors accept as non-operating) and it feels less like ownership. But cash is bankable, fundable and governable - which is often exactly what the retention problem needs.

Approach 3 – selective liquidity windows (only where they are funded)

This is where people overreach. A liquidity window is only credible if you can actually fund it. 

The same discipline applies across the stack: cash bridges must be budgetable; liquidity windows need a specific funding source.

Where liquidity windows can work in infrastructure:

• Sponsor‑facilitated secondaries (controlled, periodic).
• Buybacks funded off refinancing proceeds.
• Netting against new money raises (capital raise generates purchase demand).
• EBT/warehouse structures (fact‑dependent).

This approach is valuable, but not universal. Treat it as an enhancement, not the centrepiece.

Closing thoughts

Exit‑based MIPs aren’t flawed. They’re just incomplete for long‑hold infrastructure. The fix is not to make infrastructure behave like private equity. The fix is to build an incentive stack that acknowledges two truths at the same time:

• Equity pays when liquidity exists.
• People need real incentives before then.

At Burges Salmon, we build incentive systems that behave like infrastructure: durable, predictable and fair across cycles. Our team specialises in designing and implementing layered, long-term incentive structures that work in complex, illiquid environments, from infrastructure platforms to regulated asset managers. We align rewards with value creation, not just exit events.