Carried interest is by far the most common focus for firms looking to financially incentivise their impact, according to a research report on impact-linked compensation structures.
Produced by nonprofit The ImPact with funding from The Tipping Point Fund, the report collates responses from 214 participants in the impact investment ecosystem, almost half of which were fund managers, to provide a snapshot of current practices, and advice for those looking to implement similar structures.
Almost three-quarters (74 percent) of respondents implementing financial impact incentives are focusing on carried interest to do so. A minority (14 percent) are using bonus structures.
Respondents were more split with regard to how they are setting metrics. The percentage of GPs setting bespoke targets for each portfolio company (45 percent) is only slightly higher than those with standard metrics across the portfolio (39 percent). A minority (16 percent) use a combination of the two.
GPs cited a number of reasons for linking their compensation to impact. The most common response (38 percent) was that it helps to align incentives across the fund team, though improving the probability of achieving the desired impact was also a common response (29 percent. A small proportion (12 percent) are linking impact to compensation to achieve financial returns.