We want to reward our key employees when we sell the business, but we do not want to give them actual voting shares today that complicate our corporate governance. How do we structure a phantom stock or synthetic equity plan on our exit runway that aligns them with our exit goals?

Question

Tyler Smith · Accepted Answer

Handing out actual equity to employees on your exit runway can create massive operational and legal headaches. It gives minority shareholders voting and information rights that can slow down or even block a transaction during critical deal negotiations. Instead, you should use synthetic equity instruments like phantom stock.

A phantom stock plan is a contractual agreement that mirrors the value of real stock without giving away actual ownership or voting power. You grant key team members phantom units that track the appreciation of the company's value. When the business is sold, those units convert into cash bonuses paid out from the transaction proceeds.

Structure this plan on your exit runway with clear vesting schedules and performance targets aligned with your V/TO®. This keeps your key leaders highly incentivized to hit their quarterly Rocks and build enterprise value, knowing they have a direct stake in the ultimate outcome.

Because phantom stock is purely contractual, you retain complete control over the company's governance and the sale process itself. It is a clean, practical way to align your team's incentives with your exit goals without complicating your cap table.