What is Phantom Stocks vs. ESOPs?

Phantom stocks are a type of employee benefit that mimics the value of company stock but does not grant actual ownership. The employee receives a cash bonus based on the increase in the stock's value. ESOPs, on the other hand, grant the right to buy actual shares.

Startup Example: A startup wants to incentivize a key employee without diluting its cap table. It grants them phantom stocks tied to the company's valuation, which pays out a cash bonus upon an exit event.

This is another tool we explore in our compensation advisory.