Equity Comp Is Broken at the PE-Backed Mid-Market

‍Boards still pitch the equity package like it's 2018. Candidates have figured out the math. The offers that land in 2026 look different.

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Equity compensation in public companies works because the stock is liquid. The executive can see the price, vest into shares, and sell on a schedule. The compensation has a knowable value, a knowable timeline, and a market that pays it out.

Equity compensation at PE-backed mid-market companies is a different instrument with the same name. The board calls it equity. The candidate gets a percentage of a company that may or may not exit at the multiple the deck promised, on a timeline that may or may not match the original five-year hold, with a vesting schedule that may or may not survive a recap, a strategic sale, or a continuation fund.

Most boards still pitch this package as if it were the public-company version. Most candidates have figured out it isn't. The result is a slow erosion of leverage on the buy side of every senior search.

What the candidate actually sees

A typical PE portco offer in 2026 includes some mix of options, profit interests, restricted equity, or phantom equity. The mechanics vary. The candidate's question doesn't.

When does this turn into money?

The honest answer is rarely "in five years at 3x." The honest answer is "at some point between three and seven years, at a multiple that depends on the exit window, the LP base, the rate environment, the strategic landscape, and which fund the company ends up in if the original hold extends."

Strong candidates have done this math before. Many have lived through the version where the company hit Year 5, the multiple wasn't there, the GP rolled the position into a continuation vehicle, and their "equity" reset its vesting clock. That memory is now permanent. The candidate who has been through one of those cycles will not accept a 2018-era equity pitch at face value.

Where the math breaks

Three structural issues make mid-market PE equity harder to underwrite than boards typically acknowledge.

The vesting clock and the hold clock drift. A four-year vesting schedule was designed around a five-year fund hold. Holds have stretched to six, seven, eight years across many 2018 to 2020 vintages. The executive vests fully and then waits, with no liquidity, for two to three more years. The math the board pitched doesn't survive contact with the actual exit timeline.

The strike price assumes a clean valuation. Options struck at the last round are worth what the next round is worth, minus the strike. In a flat-to-down market for mid-market PE valuations through 2023 to 2025, many options grants from the 2021 to 2022 vintage are now underwater or worth a fraction of what the deck implied. Candidates have watched their friends discover this. They factor it in.

Continuation funds and recaps reset the deal. When the original fund rolls the company into a continuation vehicle, what happens to the executive's equity is rarely the version the executive thought they were getting. Sometimes it accelerates favorably. Sometimes it doesn't. The candidate doesn't know which until it happens, and the board often doesn't either.

The board sees an equity package worth, on paper, $3M at the bull case. The candidate sees a probability-weighted package worth somewhere between $600K and $1.8M depending on assumptions, with a timeline that could easily stretch eight years.

What's landing in 2026 offers

Three components of comp are doing more work than they used to.

Signing bonus structured as a cash floor. Six-figure signing bonuses, often payable over the first 12 to 24 months, are increasingly non-negotiable for senior candidates. The bonus does two things: it bridges the loss of unvested equity at the prior employer, and it puts real cash on the table on a known timeline that doesn't depend on an exit.

Severance with teeth. Six to twelve months of severance with double-trigger acceleration of equity has become standard at the senior level. Candidates know that PE portco tenures are often shorter than the equity vesting schedule. The severance provision is what makes the deal underwritable.

Annual cash bonus tied to operating metrics, not exit. Strong candidates increasingly want a meaningful annual bonus tied to EBITDA, growth, or specific deliverables, paid in cash each year. The equity is upside. The annual bonus is the part they can plan around.

The candidates who walk away from PE portco offers in 2026 usually aren't walking away from the equity. They're walking away because the cash floor underneath the equity wasn't real enough.

What boards should do differently

Three changes to how a senior offer gets constructed.

Stop leading with the equity headline number. The "$2M at 3x" framing reads as marketing to a sophisticated candidate. Lead with the cash package, the bonus structure, and the severance. Treat the equity as the upside it actually is.

Show the probability-weighted math. A candidate who sees the board's own assumptions about exit timing, exit multiple, and the resulting expected value range will trust the offer more than one who's been pitched the bull case. The bull case erodes trust. The honest case builds it.

Make the cash floor real. If the candidate is leaving meaningful unvested equity, the signing bonus and severance should cover it. Boards that try to win senior candidates on equity upside alone are increasingly losing the candidate to a competitor that put real cash on the table.

The sharper version of the question

Stop pitching mid-market PE equity like it's public-company equity. The candidates you want have figured out the difference. The offers that land in 2026 acknowledge it directly, build a real cash floor underneath it, and treat the equity as what it actually is. Upside on a long timeline with multiple ways to disappoint.

Boards that update the comp conversation hire the leaders they actually want. Boards that don't keep losing late-stage candidates to the company that put a real signing bonus and a real severance on the table.

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If you're scoping a senior search and the comp package feels like the 2018 version, we'd be glad to pressure-test it with you.

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