Vesting and Phantom Shares: how to maintain talent without losing control of your company

Vesting and Phantom Shares: how to maintain talent without losing control of your company

Retaining talent is one of the greatest challenges for any growing company. In an increasingly competitive environment, where the most valuable profiles receive many offers, offering an attractive salary is no longer enough. Employees are looking for projects where they can grow, contribute value and, above all, feel part of something bigger. But how can this sense of belonging be achieved without giving up control of the company? This is what vesting and phantom shares are all about.

Many companies face the dilemma of how to reward key employees without becoming too diluted or complicating their structure. Offering real shares can be a solution, but it carries risks, as it cedes some control, complicates decision-making and introduces new partners with rights that may not be aligned with the long-term vision of the founding partners.

This is where tools such as vesting and phantom shares become great allies in aligning interests, fostering commitment and protecting the structure of the company.

Vesting

Vesting is a system that makes it possible to grant progressive rights to shares or economic benefits of the company, conditioned to the fulfillment of certain requirements, generally the passage of time and/or the achievement of objectives.

For example, an employee may be offered 2% of the equity, but with a vesting schedule of four years, with a one-year “cliff”. The cliff means that he will not vest until he completes his first year, and thereafter he will vest a percentage each month until he completes 100% after four years. If you leave before the first year, you will receive nothing. If you leave after two years, you will only have vested 50%.

This structure protects the company from giving shares to people who do not stay long enough to provide real value.

Phantom shares

Phantom shares are a mechanism by which economic rights similar to those of a partner are offered, but without delivering real shares or altering the corporate structure. In other words, the beneficiary does not become a partner, but can participate in the benefits, as if he were one.

For example, if phantom shares equivalent to 1% of the company are granted, and in the future the company is sold for 10 million, the beneficiary will receive a payment equivalent to 1% of the value, i.e. 100,000 euros. However, during all this time, he had no voting rights, no participation in meetings, and no access to the confidential information of a partner.

Phantom shares are usually instrumented through private contracts that establish very clear conditions: deadlines, events that trigger the payment (such as a sale and purchase or an investment round).

Combining phantom shares and vesting

On the other hand, combining phantom shares with vesting is an even more effective strategy. That is, offering phantom shares with a vesting plan. In this way, the employee perceives that he or she can benefit financially from the company’s growth, but only if he or she stays with the company for the agreed time or meets certain milestones.

This combination brings several advantages:

• Retains talent: people stay because there is a significant future reward.
• Avoids corporate conflicts: by not becoming partners, employees do not participate in management or voting.
• Aligns interests: the better the company does, the greater the economic benefit for all.
• Legal and fiscal flexibility: it can be adapted to different regulatory frameworks and customized agreements.

Both vesting and phantom shares must be carefully drafted in the incentive plan. Legal advice is essential to avoid ambiguities that may lead to future conflicts.

In addition, tax implications must be considered. In many countries, phantom shares are taxed as earned income at the time the payment materializes. This can result in a significant tax burden if not well planned.

In short, in a labor market where talent makes the difference, companies must be creative to attract and retain their best professionals. Tools such as vesting and phantom shares make it possible to offer powerful incentives without relinquishing control or complicating the corporate structure.

It’s not just about profit sharing, but about building committed teams with a shared vision. When employees feel that their efforts have a real impact and that they can share in the success, they become true partners in the project, even if they do not appear as such in the company’s commercial register.

And that is where the real value of these strategies lies: in creating corporate cultures where everyone is rowing in the same direction.