Phantom shares: how to incentivise employees without giving real shares

Phantom shares are a variable pay mechanism that gives employees economic rights linked to the value of the company without making them actual shareholders.

How do they work?

The employee receives a "bonus" that is paid in cash when a liquidity event occurs (sale of the company, IPO, etc.). The amount is calculated on the increase in value of the shares since the grant date.

Advantages

• No notarial deed or amendment of the articles required.
• The employee has no political rights (voting) or access to corporate information.
• It is a deductible expense for the company for corporate tax purposes.

Tax treatment for the employee

It is taxed as employment income under personal income tax, and the 30% reduction may apply if certain accrual requirements are met. At DPL Asesores we design phantom share plans.