Design your own market-standard phantom ESOP

Building a startup is like climbing Mount Everest - most of the work has to be done before you begin the ascent. One of the items on your scaling to-do list should be implementing an ESOP (Employee Stock Ownership Plan) to keep your team engaged and motivated. And if you’re an early-stage startup from Czech or Slovakia, phantom (virtual) plan is likely a perfect fit for you.

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Why employee equity?

For early-stage startups, your team is easily the top asset you have. That’s why hiring and retention is the name of the game. But finances are always tight, so getting top talent with cash only is a challenge. This is where ESOP shines. By giving equity to your team on top of regular salary, you can keep up with your more mature competitors while aligning your team’s motivation with company success. The outcome? Your people won’t look at their job as another 9-to-5, but as their own project.

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Choosing and launching the right ESOP can seem like a daunting task and it’s easy to get lost in the details. But there’s a simple solution to this problem: go for a battle-tested market-standard plan.

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Why phantom ESOP?

A phantom (virtual) plan is a type of ESOP that gives employees a share in the company’s success without actual stock ownership. Instead, your team gets phantom shares (not real shares) which entitle them to a cash bonus payable typically on exit. The value of phantom shares mirrors the value of actual shares - so when the company valuation increases, the value of phantom shares grows as well.

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The plan is very flexible - it works with any corporate structure and you can easily transition to an asset plan (based on stock options or real shares). It’s also very easy and inexpensive to set up and your team doesn’t make an appearance on your cap table which keeps things simple. The only down-side is taxation. That’s why phantom plan is the go-to option for most Czech and Slovak startups who want to start simple and graduate to a more tax-efficient plan as they scale.

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Designing your phantom plan

Finally - there’s no need to spend hours overthinking the exact legal parameters of your phantom ESOP. We’ve put together a handy one-pager that contains all key ESOP parameters and their market-standard value. Although it’s tempting to think that your startup requires special treatment, over 80 % of our customers use the market-standard setup without any tweaks.

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So what are these market-standard parameters? Here are the ones that matter the most:

• ESOP pool size: the amount of equity allocated for ESOP (in %)
• Vesting type: time-based vesting or milestone-based vesting (i.e. vesting tied to KPIs)
• Vesting period: period over which the equity award becomes fully vested
• Cliff period: non-vesting period that occurs after equity has been granted (if an employee leaves in the cliff period, they leave with zero assets)
• Vesting schedule: vesting mechanism based on frequency (monthly, quarterly or annual) and linearity (linear or non-linear)
• Good leaver definition: employee who leaves the company on good terms without seriously breaching an obligation to the company
• Bad leaver definition: employee who seriously breaches their obligations to the company (e.g. fraud or a breach of NDA)

Want to see the remaining parameters and what their market-standard setup is?

Create your phantom plan within minutes

Are you ready to launch? Create your phantom ESOP directly in our platform. You can create your account and send digital ESOP awards to your team within minutes. And if you prefer having a skilled lawyer by your side, we’ll be happy to guide you.

Create your account here.