The following guide will help you decide which parameters need to be decided for a phantom plan. For remaining questions, contact one of the partnering law firms.

The parameters you need to decide

ParameterWhat to decideHow to decide
Size of the poolNumber of virtual shares reserved for employees, with one virtual share equal to one common share of the company.

It is often also expressed in percent of the total shares.
Discuss with your board, they have to approve the plan.

Common practice at the seed stage is 5 - 10% of the company’s share capital on a fully diluted basis. This typically goes up to 20% during the company lifetime.
Vesting
  1. Number of years
  2. Cliff or not
  3. Interval of allocation
Discuss with your board. Common practice is 3 - 4 years duration, monthly allocation, 1 year cliff.
Accelerated vesting at exit, change of control or IPOChoose among 3 possibilities:
  1. Single trigger: Automatic full vesting
  2. Double trigger: Automatic full vesting only if
    (i) transaction (exit, change of control, IPO) occurred and
    (ii) a certain number of months pass after the transaction (e.g. 12) or termination of employment
  3. Accelerated vesting only as determined by board of directors
Also this you should discuss with your investors. The common practice is 1 but 2 is also often seen, especially in the US.
Triggering Cash-EventsSeveral types of events can trigger a payment to phantom holders: the payment of dividends, a voluntary liquidation, a change of control / exit (transfer of >50% of voting rights or sale of its assets) or IPO.

Most are standard, but you should decide whether you want dividend payments to be a triggering event.
Think about whether your startup could someday give out dividends or if will aim for an exit before.

Common practice: Usually dividends are no triggering event, as it adds another layer of complexity.
Termination during Vesting PeriodIf the company should have a repurchase right on vested options in case the employee’s employment is terminated (in good terms).The common practice is to have a repurchase right even though it is rarely exercised.
Termination after Vesting PeriodIf the company should have a repurchase right on vested awards in case the employee is terminated (in good terms).The common practice is to have a repurchase right even though it is rarely exercised.
Virtual options or sharesA phantom plan can mirror options with a strike price.Mostly only virtual share plans are used.

Standard parameters, but good to know

EligibilityWho should be able to receive rewards: Employees, consultants, advisors, members of the board of directors (the “Participants”)
FundingVia the Company (indirectly through all shareholders pro rata)
Issue PriceFree of charge
Conditions to Cash-Payments
  • Triggering event as described above
  • Vesting fulfilled
  • No material breach of employment relationship
  • No termination of employment relationship
Transferability of AwardsNone, unless in case of death as under the applicable matrimonial property and inheritance laws and the Participant's lawful last will.
Term of the Plan (Expiration)10 years
Anti-Dilution ProtectionThe Participants acknowledge and agree that the Options granted under this Plan are granted without protection against future dilutive effects (e.g. issuance of new shares of the Company).
Governing law and JurisdictionSwiss law, place of domicile of the Company.