PE firms are increasingly recognising that the success of their investment strategy depends as much on organisational culture as on operational performance

Culture as a value lever

That PE investors are thinking about culture as a value lever should not be surprising. Recent discussions between PE boards and operating partners highlight that even the most detailed playbooks, growth targets and process improvement plans can be undermined if culture and incentives are misaligned.

Growth in fund value is a direct result of the growth in value of portfolio companies, driven by their performance. Pay influences behaviours and behaviours are a visible manifestation of an organisation’s culture.

Aligning pay, culture and strategy ensures that behaviours and decision-making reinforce strategic organisational goals, and do not undermine them. Strategy sets the direction but culture and pay determine how well and how fast desired outcomes are delivered.

The evidence

The finding in MM&K’s latest PE compensation survey 2025 European PE and VC Compensation Report that 20% of participating firms are offering investment professionals participation in LTIs in addition to carry is evidence that the sector is getting serious about culture as a value lever.

Carry is an opportunity to participate in the growth in value of a fund, but LTI provides an opportunity to participate in the growth in value of a business or group of businesses. For PE investment professionals, participation in LTIs enables the PE house to align part of their compensation directly to the performance of the portfolio company/companies for which they are responsible, recognising culture as a strategic asset.

Takeaway

Our survey finding that 20% of participating PE firms offer LTIs is encouraging but it also reveals that 80% might benefit from some help to utilise the alignment of pay and culture as a strategic asset.

MM&K is a leading independent adviser to PE firms and their portfolio companies on the design and implementation of tailored pay structures. If you are curious and want to explore how MM&K could assist your Board to optimise the advantages of aligning pay, strategy and culture, contact Tamsin Howells (tamsin.howells@mm-k.com) or Stuart James (stuart.james@mm-k.com).

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