Our leadership team knows an exit is coming eventually, but they do not have equity. How do we design a phantom stock or stay-bonus plan on our exit runway to keep these non-owner executives locked in and motivated through the transaction?

Question

Tyler Smith · Accepted Answer

Retaining your core leadership team is vital because buyers are purchasing the team that runs your operating system, not just the physical assets. If key executives leave during the transition, your valuation will plummet. To align their incentives without diluting your actual equity, you should implement a phantom stock plan or a structured stay-bonus program on your exit runway. A phantom stock plan mirrors the financial benefits of actual stock ownership without granting voting rights or actual shares. You grant units that track the value of the company, which payout upon a change of control. Alternatively, a stay-bonus plan can be structured to pay out in stages, such as fifty percent at the closing of the transaction and fifty percent after twelve months of continuous employment with the new owner. To introduce these programs, tie them directly to the company's long-term performance targets as outlined in your V/TO. This keeps your leadership team focused on executing their quarterly Rocks and driving enterprise value, knowing they will share in the financial reward of a successful exit. By securing these agreements early on your exit runway, you show potential buyers that your leadership team is fully committed to the long-term success of the business, which significantly de-risks the transition.