Phantom Equity

Owners of privately-held or closely-held businesses who wish to offer ownership to executives or other employees have a dizzying array of options depending on their ownership structure. But over the years, we’ve learned that granting actual equity is fraught with pitfalls which often make it the least attractive option.

Instead, we favor Phantom Equity. Such plans allow owners to maximize and optimize the profit potential and future value of the business. Properly designed Phantom equity plans only pay participants when the value of the business increases. Owners retain the majority of the increase in company value while still making meaningful payouts to participants. A properly created Phantom Equity plan can transform a business into a compound growth machine.

Properly designed Phantom Equity plans can have extraordinary motivational impact on participants by:

  • Empowering them to make the decisions necessary to improve business performance
  • Focusing them on increasing the value of the specific function(s) over which they have responsibility, authority and impact
  • Connecting participants strongly to the company’s future
  • Rewarding them for their contribution toward increasing the company’s value
  • Supporting and enhancing the owner’s strategic vision for organizational success
  • Creating a sense of teamwork and encourage participants to work together toward achieving common goals
  • Encouraging participants to perform and behave like owners and leaders
  • Encouraging high-performers to remain with the company for the long-term
  • Engendering the passion, commitment, and drive commensurate with ownership

Our process helps business owners visualize where they want their company to be in five years through the creation of formal strategic and financial business plans. Since Phantom Equity is highly flexible, we work with owners to design a plan that fits their specific needs. We help determine eligibility, define the number of shares, and the method for valuing each share. We determine how participants earn shares, how many shares they earn, and how these shares vest. We do extensive modeling and sensitivity analyses to test how the plan performs under a wide range of performance scenarios. We determine the impact of the plan on the owner’s personal finances. We take special care to consider the impact of the plan on potential buyers – an often over-looked issue. And we develop communication materials to explain all this to participants in a clear and compelling way. In the end, you will have a powerful new program to propel your organization to new heights and share the success among the key stakeholders responsible for that success