If you’re thinking about going public, you may have heard about phantom stocks from your friends or from the news. Phantom stocks are used by some companies as part of their employee incentive plans, but they’re often misunderstood and even feared by those who don’t know much about them. However, these special types of stock can be a great way to reward your employees without making the company go public before it’s ready to handle the added scrutiny of being on the stock market.
What are phantom stocks?
Phantom stocks are a way to reward employees without giving them an actual monetary incentive. They’re typically given to high-level employees as a way of thanking them for their hard work or commitment to a company.
What are your benefits?
Phantom stocks aren’t a traditional method of compensation, but they can serve as an effective way to attract and retain top talent. The main benefits of offering them to employees include
When do you use them?
Most business owners use phantom stock plans to motivate employees and recruit top talent. Both of these goals can be accomplished by allowing employees to buy stock in your company over time without putting an additional financial burden on them.
By sharing a portion of your success with them, you show your employees that you appreciate their work and believe in their futures. You also incentivize employees by giving them a vested interest in growing your company through meeting benchmarks and earning profits for themselves.
How do implement them correctly?
A majority of companies give out stock options to their employees. This stock grants them shares in their company, and after a few years, when they’ve vested, these shares can be used as currency to purchase company stock at market value. These phantom stocks, however, require no such vesting period.