<aside> <img src="/icons/arrow-right_orange.svg" alt="/icons/arrow-right_orange.svg" width="40px" /> From the Pay Your Top People
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<aside> <img src="/icons/checkmark-line_orange.svg" alt="/icons/checkmark-line_orange.svg" width="40px" /> Solutions:
An owner badly wants a liquidity event.
To achieve that outcome, top people need to get aligned (and rewarded!) for that outcome. Currency from the liquidity event provides great options for an incentive program.
If you are a closely-held company and don’t already have an equity plan, then these are your three potential solutions:
The simple solution - Sale bonus plan
The senior employee will receive a one-time payment equal to 5% of the sale proceeds if the company is sold during their employment tenure.
The sophisticated solution - Phantom stock
The senior employee will receive “units” in a plan that track to the value of the company as determined by the Board. At a liquidity event, the employee’s units are valued based on the sale price and payment is made according to terms of the plan. Phantom stock can have “vesting”, required ongoing employment, and other more complicated provisions.
The more sophisticated solution - Equity
The senior employee gets stock in the company. This can be in the form of Options or actual shares, subject to vesting or other restrictions based on the plan you design. This can create more beneficial tax outcomes to the employee depending on structure and also comes with stock ownership rights.