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Don’t give it away – by Jo Haigh

Jo Haigh

Jo Haigh

Incentivising your key staff doesn’t have to mean diluting your ownership. One of my favourite ways of engaging with your staff on a long term basis is via a phantom share scheme, or as it’s sometimes called an LTI (long term incentive).

In order to produce a great and relevant scheme, you need you to consider a number of issues.
The beauty of an LTIP is that you can write your own rules; you need no revenue or other regulatory approval, so it can be as complex or as simple to suit your needs.

The scheme generally works by creating a business base value, which gives you as the vendor, the ability to allow key employees to participate in any uplift in that value for a given period or related to a specific event, such as a sale of the enterprise.

Here are some points to review before you start the process. This is not meant to be an exhaustive list but it’s a good basic start.

  • What total % of the uplift do you wish to allocate (the allocation pot)?
  • Do you wish that to be a finite %?
  • On day one of the allocation, do you wish to allocate the whole allocation pot?
  • If you introduce other people into the scheme, would you anticipate everyone would take a dilution or will you issue a greater total %?
  • Equally if participants leave, what do you wish to happen to their %? Will it for instance just sit in escrow, or will it go back into the pot for reabsorption by the other participants?
  • Would you like to be able to allocate extra LTIPs % to some or all individuals based on certain performance criteria?
  • If so, what do you have in mind as performance measurements?
  • Do you wish all members of the scheme to know what each other person has % wise?
  • Do you want value out to be linked only to a definite sale of the business, or to a defined date?
  • Do you want participants to be able to cash out some or all at given dates and if so what triggers would you like for this?
  • Do you want to have good / bad leaver clauses that allow the participant to either exit with nothing if they are a bad leaver, or to have all / some rights if they are a good leaver?
  • What are your criteria for good and bad leavers?
  • Would you like to share any burden of the difference on a pay-out due to relevant tax effect of a capital gain v income tax charge, or do you expect the participant to bear such costs?
  • Who do you expect to pay employers NI on a pay out?
  • What conditions would you like writing into a scheme in relation to death in service?
  • What conditions do you want in relation to actual cash pay-out, i.e. in relation to say the business ability to make such cash payments, due to cash flow issues?
  • Will you want an annual review of valuation and presentation on the value of an issued LTIP %?
  • Do you want the flexibility of the right to roll over a ”cash in” to a different period, or do you want dead stop dates?
  • Finally, consider carefully who you want in such a scheme. It should not be given lightly and should be reviewed in terms of worth to the participants annually, to maintain interest.


Jo Haigh is head of FDS corporate finance services and the author of The Financial Times Guide to Finance for Non Financial Managers. You can reach her at


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