Work it Out Blog

How to Retain Key Managerial Employees and Transition Your Business at the Same Time

Mar 10, 2015

The employment market is heating up and placing pressure on businesses trying to retain key managerial employees.  This comes at a time when many baby boomers are looking for a way to transition their business to new ownership. Selling a business to third parties can be expensive and difficult.  An unqualified, Phantom Stock Employee Benefit Plan is a great way to encourage your most valuable managers to stick with you, without having to give away real stock.  On top of that, we have developed a plan that goes one step further by providing an ideal way to transition your business to an owner who you have personally trained.

We have combined Phantom Stock with an option to purchase the business in the future, under one straight forward Plan Document.  The Plan provides a selected employee, or group of employees, the right to earn Phantom Stock on an annual basis.  At the same time, the Plan conveys an option to the employee to acquire the business at a designated time in the future.  The Phantom Stock has no pecuniary value until and unless the employee exercises the option to purchase the business, usually at its appraised market value.  If and when the employee closes the deal, the phantom stock converts to real stock and the employee has instant equity in the business.  This can allow the employee to leverage the buyout with bank financing and avoid seller financing.

Financial performance targets can be incorporated into the benefit plan as a condition to the employee’s right to receive the annual phantom stock credit.  Phantom Stock Plans provide tax benefits which real stock plans cannot.  Moreover, unlike real stock, Phantom Stock cannot be attached by creditors and can be protected in the event of divorce proceedings.  Phantom Stock Plans can be very flexible to meet your needs.  For all of these reasons, we are excited about the opportunities that this tool provides to our clients.

If you would like to know more about phantom stock and how it can be part of a succession plan, contact Rob Roland at, or directly at 330-458-2166.

The content of this blog is for informational purposes only and is not intended as legal advice for any purpose. This blog is not intended to present an exhaustive summary of all applicable laws, or to take the place of legal advice.  If you have any questions regarding the law, please contact us for assistance.