A phantom equity plan can have multiple benefits for small business owners and their employees. Employees earn a potentially significant financial reward as well as a sense of ownership in the company. Employers can incentivize a high level of performance while attracting and retaining key staff.
A successful phantom equity plan, however, depends on buy-in from the employees it benefits. In order to see the positive results of such a plan – increased productivity, boosted morale, reduced turnover and heightened retention – employees must recognize the value of what is available.
If you’re offering a plan to your employees or considering implementing a phantom stock plan for your small business, it’s important to remember that they may be unfamiliar with the concept.
To reap the full benefits of a phantom equity plan, employers must thoughtfully and internationally engage employees and provide clear, detailed information about what the plan involves, how it fits your goals as an employer and a small business, and how it is beneficial for your team.
The sense of investment and skin in the game is one of the central values of phantom equity plans. The plan should demonstrate your commitment to employees and provide them with a meaningful stake in the future of the business. If they know their financial goals are tied to the company’s overall success, they’re more likely to work together as a team to drive extraordinary results.
Transparent communication
Start by explaining exactly what phantom stock is and what employees can expect from your plan. Provide a basic breakdown of phantom stock and how it works, and offer detailed insights into the legal documents they’ll be expected to sign. Be available for individual sessions with employees, who may be overwhelmed by the volume of information presented to them and the legal and technical jargon they’ll be navigating.
Be equally transparent about your decision to offer a phantom stock plan. Why did you choose this option rather than a traditional stock offering? How does employee retention help the company? How does it benefit employees? How will the phantom stock plan impact the company’s current benefits package?
Anticipate concerns and questions
It’s helpful to anticipate employee concerns and questions. Staff members may feel reluctant to bring up specific topics or acknowledge they don’t know about a particular subject. Offering key information to them in a fact sheet or other convenient format can ensure even the most sensitive or elementary subjects are addressed.
What is phantom stock and how does it work?
Can employees sell their phantom stockholdings?
Are all employees offered phantom stock?
Is a payment guaranteed?
What happens if they take another job?
Does implementation of a phantom equity plan mean the company is being sold?
Make sure your fact sheet is concise but thorough and easy to understand. Keep plenty of extra copies around and make them freely available throughout the workplace. Continue discussing the plan extensively in the period leading up to implementation.
Remember that you’ve spent several months immersed in the details of employee ownership plans, including phantom stock plans. The employees you’ll be bringing aboard don’t have the same familiarity with these options as you have gained.
A phantom equity provider like Reins can be a valuable resource for finding the right plan for your business and preparing employees for the transition. Give them time, space and information to process what you’re offering, and chances are they’ll buy in – which is critical to the plan’s long-term success.
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