Earnups . . . 

are arrangements whereby an investor acquires most of a company’s capital stock but gives management the opportunity to increase its stock ownership by managing the company successfully. Usually, management operates the company under a contract that allows it to control the operations of the company as long as the company meets specified goals. Earnups are less a financing device than they are a technique for attracting good people to manage a company. They are sometimes used in a leveraged buyout by the outside investor to entice existing management to remain with the company. If management can keep the company profitable and meet its goals, it often can earn a substantial equity position in the company. Earnups assign little value to management’s role in putting together the funding used to purchase the company. Instead, they reward management for making the company succeed after the funding. See: Earnouts, Golden Handcuffs, LBO (Leveraged Buyout), MBO (Management Buyout), Management Agreements, Vesting Schedules.