A well‑designed management package aligns shareholder and executive interests, boosts retention, and passes tax scrutiny—all in one powerful incentive. Below you’ll find a concise guide to the concept, the most common French instruments, valuation pitfalls, and practical tips for a compliant scheme.
What is a management package?
A management package, also called a ManPack, is an essential tool for motivating, sharing value creation, and retaining key managers in mid‑sized enterprises (MSEs) and small‑and‑medium‑sized businesses (SMEs).
It involves key managers and employees in the company’s growth by aligning the interests of shareholders, managers, and staff. Investment funds frequently use these packages to redistribute part of the value they create—typically a slice of future profits.
The package gives beneficiaries the chance to share in future earnings and, crucially, to gain access to the company’s capital. However, the valuation and benefits can be complex because of the diversity of legal tools and regulations.
How it works ?
Companies grant a mix of instruments that may be free of charge or paid. When the instruments are free, the company bears a cost; if that cost is not recognized, tax authorities may treat the benefit as remuneration and re‑qualify it.
For a broader perspective on incentive design, the OECD provides a deep analysis of share‑based remuneration in Europe, OECD, 2022.
A well‑designed management package turns long‑term value creation into a personal incentive, bridging the gap between shareholders and the management team. – Marc Timmermans, Partner, Tax/Corporate
Why companies adopt management packages?
Companies turn to management packages for several compelling reasons. Below are the main motivations that drive decision‑makers:
- They boost motivation by linking personal reward to company performance.
- They help retain top talent in a competitive market.
- They align shareholder, manager and employee interests around growth
These reasons illustrate why management packages have become a staple in corporate finance.
Key instruments in a management package
Below are the most frequently used tools. Each instrument comes with its own legal, tax, and social security implications, so choosing the right mix is essential.
- Preference shares (ADP): Often convertible, they give upside without voting rights.
- Free share allocations (AGA): Shares granted free of charge, subject to acquisition and holding periods of at least two years, with individual and collective caps.
- Stock warrants (BSA and BSPCE): Rights to subscribe to a fixed number of shares at a predetermined price; BSPCEs are typically free and popular for corporate taxpayers.
- Stock option plans (SO): Options to purchase shares at a set price, usually vesting over time and tied to performance criteria.
- Paid mechanisms: Ordinary or preference shares or BSAs bought at market value, adding flexibility but requiring careful risk assessment.
These instruments provide a versatile toolbox for tailoring incentives to a company’s specific context.
French SMEs that adopt a mix of AGA and BSPCE instruments see a 12 % higher retention rate for key executives over a three‑year horizon. – Marc Timmermans, Partner, Tax/Corporate
“Actions de préférence” (ADPs)
Issuing preference shares can be an effective way to incentivize managers and align their interests with those of the company.
- They often come without voting rights, so managers do not influence decisions directly.
- A convertible feature can deliver significant upside if the company’s value grows.
- Terms vary widely and should be detailed in a shareholder’s agreement.
Because the financial outcome is directly tied to company performance, the incentive can outweigh the lack of voting power, especially when managers already hold executive positions.
“Attribution d’actions gratuites” (AGAs)
Free share allocations (AGAs) represent an effective means of distributing shares to employees and corporate officers for free but subject to certain conditions.
- Acquisition and holding periods cumulatively must be at least two years.
- They are subject to individual and collective ceilings.
- They fall under a regulated tax and social regime, making them attractive under the flat‑tax regime.
These features make AGAs a popular choice for incentivizing staff while benefiting from favorable tax treatment.
“Bons de souscription de parts de créateurs d’entreprise” BSPCEs
BSPCEs, allocated (generally for free) by any company liable for corporate tax, grant the beneficiary the right to subscribe to a predetermined number of shares at a fixed price.
- Implementation can be tied to presence duration or performance criteria.
- They align the interests of managers, employees, and the company.
Because they are free, they carry a cost for the company; if that cost is not recognized, authorities may re‑qualify them as salary.
Paid mechanisms
Paid mechanisms such as ordinary shares, preference shares, or BSAs add to the variety of value‑sharing options.
- Their effectiveness hinges on the existing legal regime, the nature of risk taken by the manager, and the acquisition context and market value of the instrument.
- Recent French court decisions have challenged BSAs, treating them as salary when the holder takes no financial risk.
Consequently, careful structuring and documentation are essential to preserve the intended capital gain treatment.
Valuation and complexity
Pricing a management package, especially in unlisted firms, can be daunting. The following factors contribute to the difficulty:
- Choice of valuation model (DCF, multiples, etc.).
- Length of the vesting horizon and any non‑transferability clauses.
- Illiquidity provisions that restrict when shares can be sold.
- Diversity of legal tools, each with distinct tax treatment.
Accurate valuation often requires specialist input, particularly for unlisted SMEs.
Tax risks and re‑qualification
French tax authorities closely monitor management packages to prevent abuse. Key risk points include:
- Requalification of gains as ordinary salary if the beneficiary is deemed to have taken no financial risk.
- Retroactive adjustments to social security contributions for the company.
- Potential double taxation if the instrument is later recharacterized.
Accurate valuation often requires specialist input, particularly for unlisted SMEs.
Practical tips for designing a management package
When you start building your package, keep the following points in mind. Below are a few actionable recommendations:
- Choose instruments that match the company’s growth stage and cash‑flow profile.
- Ensure the vesting schedule reflects realistic performance milestones.
- Incorporate clear “good leaver” and “bad leaver” clauses to protect both sides.
- Run a Monte Carlo simulation to estimate the expected value of the package.
These steps will help you avoid common pitfalls and create a robust incentive scheme. If you need help with the legal setup, you can also explore our services for Company setting-up or Tax assistance.
When the vesting schedule is tied to realistic performance milestones, the risk of re‑qualification by the tax authorities drops dramatically. – Marc Timmermans, Partner, Tax/Corporate
Expert guidance for your management package
My French Lawyer‘s registered lawyers are at your complete disposal to answer any questions about management package issues. We will connect you with the best specialists to handle your project and provide precise, tailored advice.
Navigating the legal and tax landscape of management packages can be complex, but you don’t have to do it alone. Our team of registered lawyers is ready to answer your queries and guide you through the design, implementation, and ongoing management of your package efficiently.
Feel free to reach out for personalized advice that matches your company’s specific needs, contact us today and let us simplify the process for you. For related services, you might also consider Debt recovery or Business and commercial issues.