Whether you’re a brand-new startup or a veteran of several funding rounds, every emerging growth CEO wants to find the right path to incentivizing employees while conserving capital. One creative approach that might be right for you is a phantom equity plan.
Phantom Equity – what is it?
Phantom equity is essentially a cash bonus plan that is designed to mimic the effects of having an ownership interest in a company. While the terms vary from plan to plan, they typically give the holder of a “phantom unit” the right to a cash payment on the sale of the company that equals the amount they would get if they held an equivalent number of ownership interests. There is often a threshold sale value for paying out phantom units, which mimics the effect of an option’s exercise price.
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