Orig question and answers on Quora
Dan Walter’s Response
Performance-based equity compensation is becoming more common. Usually these awards are given as Restricted Units. There is generally a number of units that vest over time, based on service (you keeping your job). There is then another layer of units that can be earned over a period of time+performance metric+(maybe)change in control. The timing usually tracks with the service based schedule. The performance metric is usually company based (EBITDA, Revenue, Number of things made or clients won etc.) It may be group/project based and for some executives it can be individual based.
These are most often combined into one award, which can be complex. But, since these awards are mostly given to smart people (like those reading this response) the complexity can usually be explained with a few slides, a few words and decent modeling tool.
Performance-based options are still pretty rare. Since there is already a price hurdle built into options most companies feel that adding additional hurdles may make these demotivational (and there is some research to support this.)
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