Phantom Share Schemes

Phantom share schemes are a type of employee incentive plan that provide employees with a cash payment based on the increase in the value of the company's shares over a set period of time. This type of plan does not involve the actual issuance of shares to employees, but rather the creation of a notional or phantom share unit that tracks the value of the company's actual shares. Employees receive a cash payment equal to the increase in the value of the phantom share units at the end of the plan period. Phantom share schemes are often used by companies that do not want to dilute their ownership structure or where there are restrictions on the issuance of shares, such as in a private equity deal.

Key things to keep in mind for this type of legal work include:

1. Creating a clear and concise plan document that outlines the terms and conditions of the phantom share scheme.
2. Ensuring that the plan complies with all relevant legal and regulatory requirements, including tax laws and securities laws.
3. Developing a fair and transparent method for valuing the phantom share units.
4. Communicating the details of the plan effectively to employees to avoid misunderstandings or disputes.
5. Establishing a process for determining payouts and resolving any disputes that may arise.

Common mistakes that people make when implementing phantom share schemes include:

1. Failing to comply with tax or securities laws, which can result in legal or financial consequences for both the company and employees.
2. Failing to establish clear valuation methods for the phantom share units, which can lead to disagreements over payouts and disputes between the company and employees.
3. Failing to communicate the details of the plan effectively to employees, which can result in misunderstandings or dissatisfaction among employees.
4. Failing to establish a fair and transparent process for determining payouts and resolving disputes, which can damage employee morale and trust in the company.

Our experienced solicitors are here to help you at all stages of your business. Contact us to learn more.

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