We are building our three-year exit plan, and I want my leadership team to have skin in the game, but I do not want to give away actual equity in the company. How do we structure phantom stock or synthetic equity for the leadership team so they are aligned with our long-term valuation goals?

Question

Tyler Smith · Accepted Answer

You do not need to give away actual shares to align your leadership team with your exit goals. Doing so often creates unnecessary administrative and legal headaches during a sale. Instead, use phantom stock or a synthetic equity plan to achieve the same motivational outcome.

A phantom stock plan is a written agreement that mirrors the value of real company stock without granting actual ownership, voting rights, or shareholder status. When the company is sold, or when you reach a specific valuation milestone, the participating leadership team members receive a cash payout based on the appreciation of the company's value from the time the plan was established.

To implement this successfully, you must tie the plan directly to your long-term V/TO goals. This shows your leadership team exactly how their daily execution and strategic Rocks contribute to the enterprise value of the company. It turns them into partners in the exit process without complicating your capitalization table. When structured correctly, a synthetic equity plan keeps your leadership team highly motivated, aligned, and focused on building a scalable, AI-powered business that commands a premium valuation from buyers.