Earned-out

The term "earned-out" describes a situation where a financial instrument, usually a grant of equity, is fully vested or realized after meeting specific performance or time-based conditions outlined in the original agreement. It signifies the completion of the terms required to receive the full benefit, such as ownership shares or payment, associated with that instrument. earned-out provisions often exist to incentivize performance, retaining key personnel, or fulfilling project milestones. The specific terms of "earning out" vary based on the contract and type of compensation.

Earned-out meaning with examples

• The software engineer's stock options were designed to be earned-out over a four-year period. Each year, contingent on continued employment and achieving specified product release goals, a portion of the options would vest. By the end of the fourth year, having successfully met all objectives, they would have earned-out all of their stock options, securing full ownership of their shares.
• The venture capital investment agreement stipulated that the founders' bonus equity could be earned-out based on specific revenue targets achieved in the first three years. Exceeding these targets resulted in incrementally earning more equity. The company's strong performance and financial progress meant they had earned-out their equity.
• The acquisition deal included an earn-out provision where the selling company's owners could earn-out a significant part of the purchase price based on achieving specific post-acquisition revenue targets. If these targets were not met, the full acquisition price would not be realized. Achieving strong revenue growth meant the owners earned-out their portion.
• The sales manager's compensation package had a performance-based bonus structure, where additional bonuses were earned-out depending on team's sales targets. Hitting the ambitious targets was required to earn-out the bonus fully. Their sales team exceeded expectations, and the sales manager quickly earned-out the targets, receiving a large reward.
• As part of their contract, the film director earned-out a percentage of the film's net profits, this incentivized them to support its success. Following the film's box-office success, the director swiftly earned-out their profit share, with the financial reward for their creativity secured.