If a buyer offers an additional payment contingent on the success of a project, what is this concept called?

The correct answer, contingent value rights, refers specifically to a financial instrument that provides the holder with a right to receive additional compensation based on the future performance of an asset, typically after a merger or acquisition. This mechanism ensures that the seller can receive additional payment tied to the achievement of certain predetermined milestones or financial goals, thus aligning the interests of both the buyer and seller.

This concept is particularly useful in M&A transactions where uncertainties surrounding the future performance of the acquired company exist. By implementing contingent value rights, the buyer can mitigate some of the risks associated with the transaction, while the seller benefits from the potential for additional payment based on the success of their business operations post-transaction.

Other concepts like performance incentives and risk-sharing agreements may involve similar elements of linking compensation to performance but are generally broader in scope and can apply to various business arrangements outside of the specific context of M&A contingent payments. Deferred compensation, on the other hand, typically refers to a form of income where payment is delayed until a future date and doesn’t directly tie into achievement metrics like contingent value rights do.