In the previous articles, we covered a simplified definition of Phantom Shares and how much it makes sense to allocate ahead of a funding round. Now it’s time to distribute them among employees. Should you give them to everyone, or only to the most important profiles?
First, it’s important to highlight that this decision has a strong cultural component. There is no single right or wrong answer — there are different approaches, all of them defensible. That said, we’ll share our professional perspective clearly.
Granting Phantom Shares to all employees is both logical and generous on the founders’ part. It means that in the event of a sale, everyone participates in the outcome — not just the investors. Employees receive it as a bonus, and depending on their allocation, the amount can certainly be meaningful.
However, there is a significant risk in distributing them broadly. Many employees will tend to undervalue Phantom Shares: they’ll sign and not think much about them afterward. Others, on the contrary, may assume they will receive a life-changing amount, without considering future dilution or realistic valuations. Very few will actually run the numbers with enough financial understanding to have a balanced view of what they’ve been granted.
For this reason, our recommendation leans toward granting Phantom Shares only to key employees — those who can truly understand, internalize, and be motivated by this instrument. If the decision is to distribute them to everyone — which is a very generous approach — we suggest complementing it with thorough education, so employees fully understand the real scope, for better or worse, of the incentive they’ve received.
I hope you have enjoyed these series about Phantom Shares! We will keep in touch.
