Phantom share awards and options
Produced in partnership with Stephen Diosi of Mishcon de Reya

The following Share Incentives practice note produced in partnership with Stephen Diosi of Mishcon de Reya provides comprehensive and up to date legal information covering:

  • Phantom share awards and options
  • What is a phantom award?
  • Phantom share awards
  • Phantom options
  • Practical example
  • How does a phantom award differ from a Share Appreciation Right?
  • What is a Share Appreciation Right?
  • How do SARs differ from phantom awards?
  • Practical difficulties/issues to consider when drafting and implementing a phantom award scheme
  • Real share ownership—a bigger incentive?
  • More...

Phantom share awards and options

What is a phantom award?

Phantom awards, broadly speaking, can be split into two categories, phantom share awards and phantom options.

Phantom share awards

A phantom share award is best described as a right to receive a cash payment equal to the value of a real share.

You may see phantom shares awards also referred to as ‘shadow shares’, ‘synthetic shares’, and ‘equity appreciation units’, however, this note refers to these as 'phantoms' and 'phantom share awards'.

Phantom options

A phantom option is the term commonly used to describe a right to receive the growth in value of a real share above a notional exercise price or base price.

Practical example

BigCo Limited is a fast growing private UK company and wants to implement an incentive plan under which all employees will participate and benefit in any future growth of the company. However, BigCo Limited has a number of investors who do not want BigCo Limited to award real shares to employees as this would dilute the existing investor shareholders.

If BigCo Limited grants phantom awards to its employees it can give its employees a right to a cash payment equal to the difference between the value of BigCo Limited shares at the date of award and their value on an exit (an exit being a sale or listing of the company). This will help to align the interests

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