Phantom Share Schemes - can you have your cake and eat it too? | Succession Plus

Which Employee Share Ownership Plan is right for your business? Watch our Free Webinar 

Phantom Share Schemes – can you have your cake and eat it too?


Phantom Share Schemes – can you have your cake and eat it too?

By , November 4, 2019

Business owners often work to have their cake and eat it as well – Phantom Share Schemes are a great example – employees receive an equity share in the business – but not really.

Phantom share plans work one of two ways:

  1. We either enter into an agreement to give our employee/s a reward (normally cash) based on the increase in share value of our business (this is a traditional phantom plan). We might agree to pay the employee the equivalent of 5% of the value of the company when we sell or list in 5 years’ time. We then pay out that amount in cash (which is taxed a marginal rate) at that future date (assuming we do sell and the employee is still there).
  2. Replicator plans are slightly different (and far more complex). Here we agree to invest an amount of money in an asset or assets that will replicate the value of our business over time. This is incredibly challenging to get right as valuations of SME’s are notoriously difficult and the changes are volatile, not to mention, finding an asset to replicate/match these changes is impossible. In 20 years, I have never seen a replicator plan actually replicate the underlying business.

But it can be far simpler. The best way to replicate or match the underlying asset is to give the employees equity in the underlying asset = 100% match, 100% of the time. An Employee Share Ownership Plan (ESOP) does exactly that and can solve the tax problems at the same time.

Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.