Oct 26, 2021
ESPP vs ESOP: Differences Between Equity Linked Compensation Structures
In this blog, we will discuss what are the ESPP & ESOP, their pros and cons, & their key differences.
Phantom stock units are tied to the value of your company’s stock and generally vest over a set period. Instead of giving unitholders the right to acquire company shares, phantom stock gives them a cash pay-out on settlement.
Depending on how the award is structured, phantom stock can vest after employees have served a set period of time (e.g., if they’ve been with the company for over one year) or when the company reaches a performance milestone, such as hitting a revenue target. Either way, vesting is a company-initiated controlled event – which allows you to pay out multiple employees at the same time.
Once phantom stock vests, the cash pay-out is equal to the full aggregate value of a stock unit in your company.
So, if an employee is issued phantom stock when your stock is valued at $10 and the award vests when your stock is valued at $50, the cash pay-out will be $50 per unit. In the same vein, if your stock’s value declines in the interim – to, say, $5 at vesting – the cash payout would be $5 per unit.
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Qapita Fintech Pte Ltd (Qapita) is a fintech and legal-tech start-up. Qapita started with digital equity management software for private companies, particularly start-ups. Its software platform is designed to enable capitalization table management, employee stock ownership plan (ESOP) management. Qapita is building more software products to provide solutions to companies as well as its investors, shareholders and employees. Qapita’s vision is to build a network of stakeholders in the private markets and digitally enable the private capital market transactions on its platform.
