As we approach the new year and reflect on the radical changes occurring over the last 18 months, recruiting top talent and retaining key employees remains a significant challenge for many businesses. For that reason, many business owners are exploring additional tools and options to attract new talent and keep key employees.
One of these tools is a phantom equity plan. A phantom equity plan offers a business significant flexibility while at the same time giving an employee something of value that is intrinsically tied to the growth of the business. Phantom equity plans provide an employee some, but not all, of the benefits of being an equity holder without the complexity, additional documentation, and voting rights typically associated with equity ownership. These benefits may include: (1) receiving distributions or dividends when such benefits are paid to equity holders, (2) payments upon a sale of the company, or (3) payments upon retirement or separation of employment.
In exchange for providing an employee these added benefits, businesses realize several advantages. First, an employee feels rewarded when they are offered phantom equity, while at the same time creatively aligning an employee’s financial goals with the business’s success. Second, the terms of a phantom equity plan can be carefully crafted to ensure an employee continues working for a business before earning any financial benefit from a phantom equity plan. Finally, businesses can require that an employee execute updated non-compete and non-solicitation covenants that will be more defensible because the employee is receiving a significant added value (e.g., potential payments under the phantom equity plan) in exchange for signing the restrictive covenants.
While these programs are “simpler” by nature, businesses must still prepare these plans and administer them in compliance with the IRS code and other applicable statutes and regulations. The attorneys at Levin Ginsburg can help design, implement, and prepare a phantom equity plan that is a good fit for your business to allow you to recruit top talent and retain key employees. For additional help navigating these issues, feel free to contact Walker R. Lawrence, a partner in the employment law practice at Levin Ginsburg, at firstname.lastname@example.org, or (312) 368-0110.