Updated on 6/6/2022

Markus Reinfeld

Stefan Steinkogler

Phantom Stock Program – Shareholding for employees

Participation for employees

The so-called phantom stock program is nothing more than a virtual participation program in the company. On a contractual basis, an incentive for key employees (and other consultants) of the company is made possible through participation of the individual in the economic success of the company.

Virtual participation in success, but no shareholder position

Such a virtual participation program can of course be found in the most diverse forms. The main advantage is that the beneficiary receives an individual virtual participation of (merely) economic value, but not a position as a shareholder and thus in particular no voting rights or rights to have a say in company matters.

It is particularly interesting for young companies (start-ups) that cannot pay high salaries at the beginning. In this context, a phantom stock program to attract important or talented employees and retain them for the long term can be of decisive importance and thus create the basis for a sustainable and successful development of the company.

Exit, Vesting, Strike Price and Co

The phantom stock program is usually aimed at a cash payment in the event of an exit (e.g. sale of the majority of shares in the company or assets of the company). So-called "vested rights" ensure that only persons working for the company for a longer period of time (usually between 2-5 years) participate in an exit success. During this period, this right accrues. In the event of an exit before the end of the vesting period, all virtual shares to which the beneficiary is entitled are regularly "vested" automatically ("accelerated vesting").

The specific entitlement of the beneficiary in the case of an exit is generally based on the difference in value between the notional underlying asset (enterprise value) at the time the virtual shares are granted ("strike price") and the value of the virtual shares at the time of the exit. A key parameter for the strike price is the valuation of the company in the course of financing rounds that have already taken place; in the case of an exit, this applies to the purchase price (or its inherent valuation).

Our Phantom Stock Program offer

You want to introduce a phantom stock program in your company? kontractory by DWP offers you a complete package for this purpose.