Employee Relations Law Journal | The Benefits of Using Contract Equity to Attract, Reward, and Retain Key Employees of Closely-Held Companies

In today’s hypercompetitive business environment, non-public companies are always looking for effective and creative ways of attracting, retaining, and incentivizing their key employees. For many non-public companies, the perfect solution is a phantom equity arrangement (also known as a contract equity arrangement). A phantom equity arrangement offers, among other things, flexibility and simplicity, particularly as compared to real equity awards, such as stock options. This column compares stock options and phantom equity arrangements to provide a clear understanding of the advantages of a phantom equity arrangement. This column also discusses “profits interests,” which is another approach to granting real equity to key employees of limited liability companies.