Hurdle Shares Allow Mittelstand Companies to Incentivise Executives in a Tax-efficient Manner and Prepare for Management Succession

In the 30 July 2025 edition of Handelsblatt, Germany’s leading business daily, Stefan Schultes-Schnitzlein explains how companies can use hurdle shares to give selected executives a stake in the company in a way that they benefit exclusively from future increases in company value. This type of arrangement aligns interests by carrying a benefit for the executive from the hurdle shares only if the company performs well after issuance.

At the same time, the value of the shares is significantly lower at the time of transfer, resulting in a significantly reduced financing or – if shares are issued to the executive with a discount to FMV - tax burden — with the same potential in the event of positive company performance. Hurdle shares are also far more attractive from a tax perspective than traditional stock options or bonus payments.

While hurdle shares have long been established in the venture capital backed company sector they are also suitable for the backbone of German economy. privately-owned medium-sized companies (“Mittelstand”) that want to retain external managers in their company and groom them as C-level successors to the current generation of family members running the company, for example.

By issuing shares without voting rights, a manager's participation can be structured so that they are only gradually granted the rights that a shareholder usually has.