In the private company context, high-performers, senior executives, and other vital employees are a company’s lifeblood. It is therefore critically important to retain these top performers, which often requires that the company’s majority owners provide these key employees with significant financial rewards. Simply paying top performers additional cash compensation or issuing them shares of an illiquid ownership interest may not be the best approach. But issuing units or shares to employees will dilute the company’s ownership and could also expose the company’s majority owners to future claims for breach of their fiduciary duties.
An alternative means of compensating top performers may be providing them with stock appreciation rights or what is known as phantom stock. This post reviews some of the pluses or minuses involved when majority owners are considering whether to issue these types of non-equity awards to the company’s highly valued employees.
The desire for an alternative to providing key employees with stock or units in the company is spurred by several factors. First, many companies are closely held and/or have elected Subchapter S tax treatment, which restricts the number of owners the company may have. Second, in closely held companies, the existing owners may be reluctant to have their ownership interest diluted by granting stock options to employees or issuing shares of stock or membership units to...
Kingspan has been fined 40 million by the European Commission for providing incorrect and misleading information during the EU’s 2021 review of its planned acquisition of rival building materials ...