Comments on: When is a partner not a partner?

By: Adrian

Adrian — Wed, 15 Jul 2009 01:15:28 +0000

@ Trainee – I only claimed the rights to my name for it … there’s nothing new – at least in business – under the sun

Thanks for the overview, and was exactly my thinking in proposing this approach.

By: traineeinvestor

traineeinvestor — Tue, 14 Jul 2009 01:23:42 +0000

Stock Appreciation Rights or Phantom Shares are actually quite common – many companies started issuing them when accounting rules changed and shareholders started waking up to the true cost/dillution effect of employee stock options and outright stock grants. Vesting periods give an employee receiving the SAR an interest in the well being of the company (at least for a short time).

Where a company is being prepared for sale, you sometimes see key memebers of the management team being offered stay bonuses – an incentive to remain in place at least until the sale has taken place and usually for a minimum period after the sale has been completed.

Your idea of linking distributions and bonus on sale (effectively an SAR with stay incentive) is a good one as (i) it gives the employee an incentive to maximise the value of the company and (ii) takes away some of the pressure to maximise distributions. Private equity firms sometimes use similar arrangements for senior management of investee companies (and their own staff).

To avoid a lawsuit, you need to be crystal clear in the contract about the circumstances where, and the terms on whcih, the arrangement can be ended prior to a sale.

By: Adrian

Adrian — Tue, 14 Jul 2009 00:17:42 +0000

@ Brandon – Interesting site; thanks for the link.

By: Andrew Warner

Andrew Warner — Mon, 13 Jul 2009 21:46:40 +0000

@brandon, thanks for the note about my site!

By: Brandon

Brandon — Mon, 13 Jul 2009 21:01:54 +0000

PS…Have you seen Mixergy.com? Awesome entrepreneur interviews that are getting better every day. I’m not affiliated in any way, just a big supporter and thought this audience might enjoy.

By: Brandon

Brandon — Mon, 13 Jul 2009 20:59:16 +0000

I like the “simulated equity” idea and it’s funny that you propose it because that’s actually where I stand in my day job. Good deal for me as a young guy and good deal for them not having to deal with actually having another owner.

Awesome response and food for thought for my future ventures. Thanks!

By: Robert

Robert — Mon, 13 Jul 2009 16:26:17 +0000

You may have made up that name but the idea has been around for a long time. Its called phantom stock.