PHANTOM SHARE

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The phantom shares or phantom shares are a claim to payment based on simulated shares in the company.. They are designed as incentive for the company's employees or management team. That is to say, function as an economic right whose value is related to the value of the company's shares or units. Basically, they are stock options linked not to real shares but to simulated shares.

How Phantom Shares work

The employee is granted the possibility to exercise its Phantom Shares at a pre-agreed point in timeUpon exercise of the option, you will receive financial compensation for the difference between the value of the share/unit at the time it was granted and the value it has at the time the option is exercised.

Advantages of Phantom Shares

• Loyalty. They retain or incentivise key employees. They usually align the team with the economic interests of the startup. The key is that Phantom Shares link the payment employees or collaborators for the efforts already made, with the time when the company can afford it.. If the company does well, it shares its success and the team gets a bonus.
• It is not equity. The beneficiary of the Phantom does not become in the company, but enjoys its main advantage: the economic rights of the company.. Therefore, its interest is focused on the fulfilment of the objectives set for the exercise of its economic rights. Furthermore, there is no dilution for existing or future partners, nor is the distribution of capital atomised, which facilitates the management of the start-up, maintaining its attractiveness for investors.
• Costs. They are reflected in a private contract and, as they are not equity, there is no compulsory expenditure in its formalisation. The costs to the company are delayed until the time of payment.
• Taxation. They are potentially more advantageous for the taxation of their beneficiaries than a traditional wage or service bill increase.

Phantom shares are a type of employee incentive that consists of giving employees a share in the profits or value of the company, but without actually giving them actual shares in the company. In other words, they are a contractual arrangement that gives the employee the right to receive a cash payment or shares in the company at a certain date in the future, based on the value of the company at that time.

The phantom shares are a way to motivate employees in the long term by giving them a stake in the company's success, but without requiring the actual transfer of shares. This can be particularly useful in situations where the founders do not want to dilute their stake in the company or where the company is not yet ready for an IPO.

It is important to note that phantom shares are a contractual agreement between the company and the employee, and must be properly structured to avoid legal or accounting problems. In addition, a clear formula needs to be established to determine the value of phantom shares and how they will be awarded to the employee in the future.

Why are PHANTOM SHARE interesting in the creation of a new company?

Phantom Shares are interesting in the creation of a new company because they allow you to offer incentives and retain employee talent without having to give up control or ownership of the company. Through Phantom Share, The employees are given the right to receive financial compensation based on the value of the company, without having to purchase actual shares.

This is especially useful in a start-up, where it is important to maintain control and ownership, but at the same time it is necessary to motivate and retain key employees. Phantom Shares allow you to offer a stake in the success of the company, without diluting the ownership or control of the founders.

In addition, Phantom Shares can be an attractive incentive to attract and retain highly qualified employees, especially in a competitive environment. By offering a Phantom Share plan, the company demonstrates its commitment to the long-term success of the company and its interest in rewarding employees for their contribution.

How can an entrepreneur offer phantom share to his managers?

In order to offer Phantom Shares to the management of a company, the entrepreneur must follow the following steps:

1. Establish the company's long-term objectives and goals: Before granting any incentive, it is important for the entrepreneur to be clear about the long-term goals and objectives of the company, as this will help determine how many Phantom Shares will be granted and to whom.
2. Define the Phantom Shares plan: The entrepreneur must design a Phantom Share plan that sets out the conditions and requirements for directors to be eligible to receive these virtual shares. It should also establish how many Phantom Shares will be granted and at what time.
3. Communicate the plan to management: Once the Phantom Shares plan has been defined, the entrepreneur must communicate it to the company's management so that they are aware of the conditions and requirements to be eligible to receive these virtual shares.
4. Evaluating the performance of managers: It is important to assess the performance of the company's management to determine who is eligible to receive Phantom Shares and in what amount.
5. Establish a monitoring mechanism: The entrepreneur must establish a monitoring mechanism to ensure that the directors meet the necessary conditions and requirements to receive the Phantom Shares.

In short, the Phantom Shares can be an attractive way to motivate the managers of a new company, as it allows them to share in the company's success without the need to invest capital in actual shares. However, it is important for the entrepreneur to be clear about the long-term goals and objectives of the company and to design a Phantom Shares plan that is fair and equitable for all involved.

Practical examples of phantom shares

Phantom Shares are a way to incentivise employees, especially managers, and are also used in start-ups to retain talent and motivate employees in the long term.

Here are some practical examples of how Phantom Shares can be applied:

1. A technology start-up wants to attract and retain the best talent in the industry. It offers Phantom Shares to its leadership team, including the CEO, CFO and CTO. These Phantom Shares are tied to the company's growth over the next 5 years. If the company succeeds in its growth target, employees will receive a share of the profits generated by that growth.
2. A small manufacturing company wishes to expand into the national market. It offers Phantom Shares to its sales team, linked to sales growth over the next 3 years. If the company succeeds in its growth target, the employees will receive a share of the profits generated by that growth.
3. A digital marketing start-up wants to reward its most valuable employees and motivate them to continue contributing to the company's success. It offers Phantom Shares to its marketing team, linked to the company's performance in terms of revenue generated through its services. If the company succeeds in its growth target, employees will receive a share of the profits generated by that growth.

It is important to note that the implementation of Phantom Shares must be carefully planned and structured to ensure effectiveness and fairness. Legal and financial advice is recommended to design and implement a Phantom Shares plan appropriate to the company's needs.

How is a Phantom Share valued? 

The valuation of a Phantom Share is based on the current value of the company's shares, taking into account factors such as the size of the company, the industry in which it operates, the financial situation and other relevant factors. The value of the Phantom Share is determined at grant, and a time limit is set for the employee to exercise his or her right to receive the payment.

How do you pay for a Phantom Share?

How to pay for a Phantom Share may vary depending on the company. Generally, a time limit is set for the employee to exercise his or her right to receive remuneration in cash or shares in the company. In some cases, the company may also offer other payment options, such as the possibility to exchange Phantom Share for other incentives, such as bonuses or additional holidays. In any case, it is important that the method of payment is clearly specified in the agreement that is made with the employee when granting the Phantom Share.