EMI schemes: exit based vs time and performance based: what’s best for your business? 

If you are ready to launch an EMI scheme, one of the most important decisions you will make is how and when those options can be exercised. 

For founders, this is not just a technical choice, it is a strategic one. The right structure can motivate employees, support retention, and align your team’s goals with your company’s direction. 

This article will help you decide whether exit based or time and performance-based EMI options will serve your business better or perhaps a combination of both will work best. 

Our team can help you design and set up an EMI option plan that works for your business. Speak to our EMI scheme solicitors today to get started. 

Why timing matters in EMI schemes

When your team can turn options into shares and ultimately into cash is critical to creating an effective EMI scheme which retains and incentives key employees. 

• Too soon, may significantly increase the number of shareholders on the cap table with the administration and legal housekeeping that comes with it. 

• Too late, and employees may lose confidence that the incentives are worthwhile and its worth sticking around. 

Early-stage companies need to think not just about tax efficiency and compliance, but also about how the scheme supports their bigger picture: retention, performance, and the culture they want to build.

We've created a handy guide on how long it takes to set up an EMI scheme if you want to read more.

Time and performance-based EMI options: rewarding contribution over time

With a time or performance-based structure, options become exercisable after a fixed service period or achievement of milestones for example, hitting revenue targets, or achieving project deliverables. 

The main terms you will see used with these schemes: 

• Vesting: this can have different meanings depending on how the scheme applies the term. Often it means that options are earned gradually, for example monthly or annually, commonly over a period of 3 or 4 years or on performance triggers. 

• Exercising: Once vested, employees can buy the shares, usually at the pre agreed exercise price, sometimes well before any exit. 

• Ownership: Employees may hold actual shares while still working in the business, meaning they may benefit from dividends and voting rights. 

Example: A SaaS start up wants to retain top developers over the next five years and reward product milestones along the way. A time or performance-based EMI scheme means the developers may see tangible benefits before a potential sale.

Exit based EMI options: reward at the finish line

With exit-based schemes, options can only be exercised when there is a defined exit event, for example: 

• Company sale (trade sale)  (Read about the top 5 EMI mistakes uncovered during an exit, and how to avoid them in our article)

• IPO 

• Management buyout 

Common terms you will see: 

• Vesting may still apply, but vested options cannot be exercised until the exit. 

• Cashless exercise: Employees do not have to self-fund share purchases in advance; they buy and sell in the same transaction at exit. 

• Clean cap table: No employees become shareholders before the sale, simplifying ownership until the deal. 

Example: A tech founder planning to sell within three years wants to avoid adding multiple small shareholders now. An exit-based scheme means the team shares in the sale proceeds without complicating administration and governance in the meantime.

Key differences at a glance

Pros and cons

What to consider before choosing

Choosing between time and performance based and/or exit based EMI options is not about copying what other start-ups do, it is about matching the scheme to your business’s goals.  

You need to weigh up how you want to motivate and retain your team, how you plan to manage ownership over time, and how your likely exit or growth path will affect the scheme’s value. The choice often depends on where you see the business in three, five, or even ten years, and how flexible you want the arrangement to be if circumstances change. 

Key points to think about: 

• Your exit horizon: Is a sale or IPO realistically on the cards in a foreseeable period? 

• Retention goals: which people do you need to retain over what period? 

• Key employee motivations: What type of incentive will your key people value and there may not be one size which fits all? 

• Cap table strategy: Are you ready to manage a broader shareholder base?

We always advise seeking expert legal advice well before implementing an EMI scheme. Find out the importance or legal advice and correct legal documentation for an EMI scheme in our article.

Common sticking points

• Define exit clearly in your documents, do not leave it open to interpretation. 

• Be crystal clear on leaver provisions, what happens if someone leaves before exercise. 

• If employees will become shareholders before exit, make sure your articles of association are updated accordingly. 

• Consider whether board discretion could give you flexibility to handle unexpected situations.

Making the right choice

There is no one size fits all answer. Many founders opt for a hybrid approach, allowing for both performance triggers and an exit-based element.

What matters most is aligning your scheme with your company strategy, growth plans, and culture. With a robust effective structure in place, and effective legal advice to back it up, your EMI scheme can be a powerful tool for rewarding your team and driving your business forward.

How we can help

If you are deciding between exit based and time and performance-based EMI options, or considering a hybrid approach, we can guide you through the decision and set up a scheme tailored to your goals.

We also offer share plan management, the best of both worlds: expert legal support and easy online access. 

If you want to read more about EMI schemes, including answers to common questions, qualifying criteria, the registration process and potential benefits, read our article: FAQs: setting up an EMI scheme.