• “Simulates” an equity plan without any of the complexity of using actual Shares voting, dividends or shareholder agreements.
  • No dilution of existing shareholdings.
  • Can be applied to as few or as many employee groups as desired.
  • Can often be rolled out globally.
  • Can apply equally to all employees irrespective of the quantity of their Share ownership or voting power in the company.
  • Can be used in some international locations to provide a comparable result, where it is too hard or expensive to offer the equity plan rolled out to Australians.


  • Company needs to fund benefits and recognise full cost in its accounts.
  • Company needs to manage its cash flow to ensure that cash is available for payment to participants.
  • More likely to be seen as more suitable for use as a senior executive long term variable remuneration plan rather than as an ESOP.
  • Employees tend to prefer real equity as they wish to become part owners of the business they work in, with all the benefits: ongoing dividends, voting entitlements and an opportunity for a capital gain in the case of a liquidity event.
  • Valuation methods can depart from the true underlying share value if a true share price is not used, leading to divergence with the shareholder experience.

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:

  1. Compliance obligations in overseas jurisdictions making it impractical to set up a specific real equity plan,
  2. Current shareholders not wishing to extend ownership to employees,
  3. 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.