What are “Phantom Shares” and what are they for?

By Javier Navarro Casanova. Managing Partner of VINCA CAPITAL

It is a formula widely used lately by some high-growth or family companies to encourage, attract and retain collaborators and key people in the development of the Company. It consists of granting an economic right, not a political one, whose objective is to align the interests of directors and employees with those of the shareholders.

The conditions and method of collecting the phantom shares will be defined by a detailed plan that the company will have defined and which will contain at least: who are the beneficiaries, the liquidity events of the right, the vesting or period of permanence during which these rights will be consolidated and how to value them.

When the moment of payment arrives, the beneficiaries receive a bonus calculated by the difference in value of the Company’s shares between the moment they were delivered and the date of exercise.

The advantage over another system such as stock options is that the beneficiary does not acquire the status of partner, does not obtain political rights, and therefore cannot hinder the adoption of relevant agreements at the share level. Shareholders Meeting.

Furthermore, the stock options system implies an economic outlay by the beneficiary to be able to buy the shares. In the phantom there is no type of disbursement by the collaborator.

Both remuneration systems also serve to minimize initial costs and that part of the salary or variable remuneration is accrued based on the evolution of the Company.

This is an unregulated figure, so there is total flexibility for its configuration, although we recommend that the Plan be formulated by the Board of Directors and approved by the Shareholders’ Meeting.