A non-ownership compensation mechanism offered to employees, where the benefits are linked to the company’s stock performance but without providing actual equity or shares. Participants in a phantom equity plan receive financial rewards that mimic the value increase of shares, typically as cash bonuses. Importantly, this type of plan does not grant any voting rights, control, or governance in the company, distinguishing it from real stock ownership. Used mainly in private companies, phantom equity aligns employee incentives with the company’s financial success, motivating and retaining key staff. The financial benefits are generally realized upon specific trigger events, such as the sale of the company or achieving predetermined financial targets.
