Incentive Distribution Rights (IDR)

Incentive Distribution Rights (IDRs) are used in master limited partnerships (MLPs), which combine the tax benefits of a partnership with the liquidity of a public company. The IDR is a schedule of distribution increases to the limited partners as the company grows.

For instance, an IDR will include adjustment times, how much will get distributed to limited partners based on quarterly growth, and incremental cash flow.

Sounds simple, but IDRs can actually be really complicated and aren’t too common, so watch out for them. While the intention is to incentivize limited partners to drive growth, IDR schedules can be written to give disproportionate payouts to the general partner in a not-so-obvious way.