About Phantom Equity Plans
Sometimes called simulated equity plans or replicator equity plans, these plans do not provide genuine securities (Shares or options) to participants. What they receive are entitlements to either the value of a Share (like a Right) or the growth in value of a Share (like an option or SAR), but on settlement the participant in paid cash via payroll, comparable to a bonus, with necessary withholdings deducted.
Phantom Equity Plans should be considered by companies facing specific challenges such as:
- Compliance obligations in overseas jurisdictions making it impractical to set up a specific real equity plan,
- Current shareholders not wishing to extend ownership to employees,
- There being no liquid market for shares resulting in a need to settle in cash.
Phantom Equity Units are generally considered to be derivatives for Corporations Act purposes. Prior to 1 October 2022 when the new Corporations Act provisions governing employee share schemes came into effect, offers of derivates faced complex compliance requirements. Now derivatives are treated the same as securities in Australia. They may be more or less regulated in other regions, but the plan can offer an experience comparable to an equity plan being operated in Australia in jurisdictions where the compliance costs of rolling out a separate plan for that region or making offers overseas do not make sense given the number of employees in the region.