Sweet Equity in Gulf Portfolios: What the Management Ticket Buys

Sweet equity is the ordinary shares a private equity sponsor lets a management team buy alongside it, at a price that looks small next to the sponsor's own cheque. In Gulf deals the plan that carries it, usually called a management incentive plan, is copied from a UK template. That template was written for a hold of about five years. Bain's Global Private Equity Report 2026 puts the average hold at exit at around seven years, and many Gulf holders, from family offices to sovereign vehicles, never plan an exit date at all. This piece sets out what the management ticket is really buying a portfolio chief executive, why longer holds, onshore share registers and Gulf employment law change what it is worth, and what a deal team should settle before it makes the hire. It is not legal or tax advice, and a board should take local counsel on anything it intends to sign.

Sweet equity: what the management ticket is

The structure is simple to describe. A sponsor buying a company puts most of its money in as preference shares or loan notes, which pay a fixed return and are repaid first. It puts a small amount in as ordinary shares. The management team then buys ordinary shares, usually at the same price per share as the sponsor. Because the sponsor's ordinary shares are a small slice of its total investment, the managers can end up with a large share of the ordinary equity for a modest cheque.

The ordinary shares take whatever is left once the fixed instruments have been repaid. If the company grows, most of the gain falls to them. If it does not, they can be worth nothing. That is the bargain, and it is why the market calls the shares sweet: the price is low and the upside is large, for as long as the business performs and the executive stays.

Around the sweet equity sits the rest of the plan. There may be a ratchet, a clause that lifts management's share of the ordinary equity if the sponsor's return passes agreed levels. There will be vesting, so that the shares are earned over time. And there will be leaver terms, which say what the executive keeps if they go early. In JOH Partners' experience the leaver terms decide the real worth of the ticket more often than the headline percentage does.

In JOH's own research, direct co-investment in the platform was the largest single long-term incentive mechanism among the sixty-four operating chief executives in The 2026 Gulf Operator-CEO Index, at 28 per cent of the cohort. Management equity is not a fringe feature of Gulf portfolios. It is where the market is heading, and that makes the details matter.

What the UK template was built to solve

The UK version of the plan has a tax logic that is easy to miss from outside. HMRC's Employment Related Securities Manual says that when an executive acquires shares for less than their market value, a charge can arise on the difference. A private company's ordinary shares are hard to value, and the executive's price is cheap because the sponsor's money sits in the fixed instruments above it. So in 2003 the British Private Equity and Venture Capital Association agreed a memorandum with the tax authority, reproduced in HMRC's own manual. It sets out conditions under which the price the managers pay is accepted as market value. One is that managers pay no less than the price the sponsor pays for the same shares. It also accepts that leaver provisions and tag-along and drag-along rights do not by themselves reduce what the shares are worth, provided the conditions are met. HMRC can set the agreement aside where avoidance is a significant purpose.

Much of the standard deal structure, in other words, was shaped to fit a UK tax agreement. The same structure then travels to a Gulf deal, where an executive's tax position depends on where they live and are paid, and where the agreement does not apply. A deal team should ask which parts of the template are there for tax reasons and which are there to motivate the executive. The first group may need rethinking. The second group is the part that has to work.

A management equity offer looks attractive when it is signed. Its real worth depends on how and when the owner sells the business, and on what the executive keeps if they leave first.

Where a Gulf portfolio changes the arithmetic

The first change is time. The Bain report says holding periods at exit are hovering around seven years, up from an average of five to six years between 2010 and 2021, and that almost 40 per cent of companies are now held for more than five years, up from 29 per cent in 2019. Those are global figures. In the Gulf, JOH's observation across private equity, family office and portfolio mandates is that the pattern is stronger still. A family office may hold for a generation. A sovereign-anchored platform may build for a strategic purpose and never name a sale date. A plan whose value depends on an exit that may not come is a promise with no date on it.

The second change is the company law the shares sit under. Law-firm summaries of the December 2025 amendments to the UAE Commercial Companies Law report that limited liability companies can now issue different classes of shares, with different voting, redemption and priority rights, if the memorandum allows. Baker McKenzie's note on the amendments sets this out, and the detail is expected to follow in implementing regulations. In the Abu Dhabi Global Market, ATB Legal's summary says preference shares are allowed where their rights are set out in the articles, and redeemable shares must be fully paid on issue. In Saudi Arabia, Charles Russell Speechlys reports that the 2022 Companies Law names ordinary, preference and redeemable shares and removes pre-emption rights on shares allocated to employees. The tools exist. Whether they are used, and in which entity, is a choice that has to be made on purpose and not inherited from the London document.

The third change is who can buy the executive's shares. In a UK deal the sponsor sells to another buyer, and the managers sell with it. In a Gulf family or sovereign structure there may be no sale. The executive then needs another route to cash: a put right at an agreed valuation, a periodic repurchase, or a cash-settled instrument that tracks the equity. Each has a cost, and the party that bears it should be named before the executive signs.

A composite: the chief executive and the seven-year ticket

What follows is a composite, with the details changed and combined. It is not any one client's story.

A regional sponsor buys a healthcare services group and hires a chief executive from an international operator. The plan comes from the sponsor's London adviser. The chief executive buys sweet equity worth a few per cent of the ordinary shares, vesting over four years, with a bad leaver clause that forfeits unvested shares and returns vested shares at the lower of cost and market value. The plan assumes a sale in year five.

In year four the sponsor is still building. A second acquisition is under way, and the investment committee has said that a sale is two or three years away at best. The chief executive's shares have vested, so the retention hook is gone, and there is no date on which they will turn into cash. A competitor offers a larger package. The chief executive's lawyers point out that leaving to join a rival triggers the bad leaver clause, and the clause asks the sponsor to buy back shares at the lower of cost and market value. Whether that works under the law governing the employment is something nobody has tested. The sponsor now has to choose between a dispute and a concession, in the middle of an acquisition.

The plan was reasonable in the form it was written. It was written for a different hold.

Leaver terms meet Gulf employment law

Leaver terms are drafted as share terms, and they run into employment law. Under UAE Federal Decree-Law No. 33 of 2021, Article 25 allows deductions from a worker's wage only in listed cases, each with its own cap, and the total may not exceed 50 per cent of the wage. Article 10 limits a non-compete clause to two years and requires it to be limited in time, place and type of work. The official text is on the UAE government portal. In the Dubai International Financial Centre, the employment law has its own rule on deductions, and law-firm commentary notes that bonuses and incentives are treated as additional payments and not wages. Saudi Arabia's Labor Law sets a similar two-year limit on non-compete clauses.

None of this means a bad leaver clause cannot work. It means the answer depends on the entity, the contract and the facts, and in JOH's experience a plan copied from London has usually not been checked against the law that governs the executive's job. A forfeiture clause tested for the first time in a dispute is a weak form of retention.

Before a deal team hires a chief executive, it should be able to say in plain words what the executive loses on the day they leave. If it cannot, the plan is not finished.

Carry and the plan without an exit

Two other JOH pieces cover neighbouring ground, and the boundaries are worth stating. JOH's perspective on carried interest and the operating partner in Gulf portfolios is about the sponsor's own team: the share of a fund's profit that an operating partner earns without putting in money. Sweet equity is different. The executive buys it with their own cash, in one portfolio company, and carries the downside. JOH's perspective on the long-term incentive plan without an exit covers the opposite case, a family group that grants a long-term plan with no sale ever in view. This piece sits between them: a company with a sponsor, a plan that assumes a sale, and a hold that may not match.

For the numbers behind pay in the region, the reference is JOH's Gulf executive reward report. Nothing in this piece adds a figure to it. For the wider picture of how management equity is structured across Gulf private capital, JOH's research on management equity in Gulf private capital, published alongside this piece, sets out the instruments, the legal layers and a self-test, and a board can read it as a companion. The report is at management equity in Gulf private capital.

What a deal team should settle before it hires

A sponsor, a family office or a platform that wants to hire a portfolio chief executive with an equity ticket has five decisions to make, and they are easier to make before the candidate is in the room.

The first is the ticket itself: what it costs, who funds it, and whether the executive's own cash is at risk or the sponsor lends against it. The second is the hold the plan assumes, and what happens if the hold runs two or three years longer. A refresh of the vesting, or a second tranche, is far cheaper to agree on day one than to negotiate in year four. The third is the leaver terms, tested with counsel against the law that governs the job and not the law that governs the shares. The fourth is the issuer: which entity holds the shares, where the register sits, and which share classes that entity can lawfully create. The fifth is the exit route for the executive if the sponsor does not sell.

The same questions apply to a sovereign-anchored platform or a family group with fund-style economics, and they matter more where governance is looser. A board that wants a continuing view of how incentives, tenure and performance are moving across its portfolio leadership, and not a snapshot at each board meeting, can use platforms such as Board Pulse to keep that picture current. JOH's investments and private equity sector page sets out where JOH sees these structures most often. Tony Couloubis on turnarounds, M&A and ethical investing is a useful listen for anyone who has sat on the sponsor's side of these negotiations, and JOH's engagement placing a chief investment officer into a GCC private equity firm ahead of a fund deployment shows how incentives and mandate are set together when the investment team is built.

For anyone who wants to understand how equity grants are priced, a plain explanation of how options, restricted units and phantom equity are valued, and why the quantity in an offer letter says little about what a grant is worth, is a sensible read before a committee compares offers. The point for the board is that the number of shares is the least informative thing in a management plan.

The ticket is a promise about time

A sweet equity ticket tells a chief executive that the sponsor will grow the business, sell it, and share the gain. Each part of that sentence carries a date, and in the Gulf the dates are less certain than the template assumes. The deal team that settles the hold, the leaver terms and the exit route before it hires will find the plan does what it was written to do. The team that leaves them for later will find that the executive has already worked out the answers.

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Key takeaways

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JOH Partners is an executive search and senior executive recruitment firm that places portfolio chief executives, operating partners and senior investment leaders for private equity sponsors, family offices and sovereign-anchored platforms in the GCC, the UK and Singapore. A deal team about to hire into a portfolio company can engage a partner before the term sheet is drafted, while the ticket is still open. Investment committees that want to see how incentives and performance are tracking across their portfolio leadership can also request a Board Pulse demo.