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What is a Phantom Share Scheme?

Quite often, particularly in growth stage companies, we will hear business owners wanting to: 

  1. Retain staff 🌟
  2. Reward staff 🌟
  3. Attract staff 🌟
Traditional employee share schemes can be found in many businesses as a solution to keep staff happy. Although, how they operate can be confusing for employees (and sometimes the employer) which can lead to the business forgetting how it all works soon after the scheme is implemented. 

Hence some companies are considering an alternative to the traditional, being phantom share schemes.

What is a Phantom Share Scheme?

Phantom share schemes are essentially for staff who are to receive income entitlements as if they were a shareholder. Except, they aren’t actually shareholders who would normally also have the right to vote on specific business matters. 

Employees of a typical phantom share scheme usually receive:

✅ Income entitlements

❌ Voting rights

Why should I use a Phantom Share Scheme?

Some questions to formulate your WHY:

  • What are your key drivers for wanting an employee reward scheme? 
  • Which employees or types of employees are you picturing will participate in your scheme? 
  • When do you want the scheme in place? 
  • Who do you need to liaise with in order to get approval for the proposed scheme (i.e. directors, advisory boards, shareholders etc)?

Some benefits to a typical phantom share scheme:

✔️ Not considered a security subject to the Financial Markets Conduct Act 2013.

✔️ No need to maintain a share registry for employee participants on the NZ Companies Office.

✔️ Easier to explain to employees that their bonus will simply be calculated as if they had shares and paid to them once the company deducts P.A.Y.E accordingly. 

How long does it take to set up a Phantom Share Scheme?

Documentation itself typically doesn’t take very long. 

The set up process for employee reward schemes really depends on choosing your structure and seeking any relevant approvals required for implementation of such a scheme (i.e. pursuant to any constitution and/or shareholders agreement). 

Naturally, the actual shareholders of the business will likely have their share in any company profit affected as a result of implementing a typical phantom share scheme.

Who is responsible for managing the Phantom Share Scheme?

Typically someone(s) in the business who will be prepared to manage: 

  1. Communicating the scheme to potential participating employees.
  2. On-going questions by participating employees.
  3. Regular reporting to management and participating employees. 

There is flexibility in the level of detail for the above tasks. Although, from an empowerment perspective, there can be mutual benefits in sharing with participating employees reasons behind any profit/success of the business. 

You’ve got choices, where phantom share scheme are just one on a wide list to consider.  It always depends on what your business wants to achieve from an employee reward scheme. 

The above is purely for informational purposes. If you have any questions regarding your business’ proposed employee reward scheme, please reach out to Janey via the below contact options.


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