Law 42/2022, of December 1, on the digital economy, entrepreneurship and innovation introduces for the first time in Andorra the figure of stock-options and phantom-shares, which are forms of highly variable remuneration used internationally to attract, retain and motivate the company's employees, managers and key collaborators, as it allows us to link them to the evolution of the business. Both figures, very common in start-ups and technology companies, are being used more and more in other types of companies, since they allow interests to be aligned between shareholders, administrators and workers, who have an individual and collective incentive to maximize business success.
Stock options are a form of compensation that allow us to link employees, managers and key collaborators through purchase options on the shares or shares of the company, so that if they achieve various goals (for example , who stay working in the company for a minimum of years or who reach certain turnover targets), will receive as consideration participations or shares in the company, becoming partners of the company. In this way, if they reach the goals that were initially set, they will become shareholders of the company, with the same rights and duties as the other partners.
On the other hand, phantom shares are a form of compensation very similar to stock options, but unlike them, they do not involve the delivery of shares or company shares. Instead of receiving options to buy shares, employees or key collaborators will receive an economic right linked to a certain number of shares, so that, if they achieve the goals, instead of becoming partners they will receive an economic amount equivalent to the shares they would have if they had actually been shareholders.
To exemplify the above, let's imagine that we want to hire a strategic manager in our company (for example, the commercial director), where in addition to a fixed salary we want to offer him a variable remuneration linked to the evolution of the business. We agree that we will hand over rights to five percent of the company if two assumptions are met: that the employee stays working for the company for at least three years and that a turnover of more than one million euros is reached. If the objectives are achieved, in the event that we deliver stock-options, the manager would become a 5% partner in the company; on the other hand, if they were phantom-shares, he would obtain the economic rights (for example, dividends) corresponding to 5% of the shares.
As we can see, these retributive forms have many advantages. Among others, they allow us to attract profiles with high experience and knowledge (which we probably could not link solely with a salary), encourage team retention and the feeling of permanence, encourage the maximization of the worker's performance and motivate him to achieve the set goals. For this reason, more and more companies, from all types of sectors, choose to reward their managers, administrators and key service providers through the delivery of stock-options and phantom-shares. How is the delivery of stock-options and phantom-shares agreed?
First, the stock-options and/or phantom-shares plan must be approved by the general shareholders' meeting, which must include at least the number of shares or shares to be delivered, the acquisition price (or the system to determine its value, in the case of phantom shares), the duration of the plan and the assumptions that give the right to receive remuneration (such as, for example, the minimum time that the worker must remain in the company, that there is no previous work breach, that it meets the work performance objectives or that it reaches a certain turnover quota).
Once the stock-options and/or phantom-shares plan has been approved, its content must be incorporated into the employment contract or service provision contract, whether employee or collaborator, in which they will be incorporated , among other aspects, the objectives to be met, the shares (or rights over shares) that you will receive, the term in which they will be delivered (vesting) and the reasons that will entitle you to the loss of rights (for example, the termination of the employment contract or breach of the contract by the service provider). If the set assumptions are met, the beneficiary of the plan will receive the shares (or economic rights) in the set form, and will become a partner of the company (stock-options) or will receive the economic rights derived from his participation in the company (phantom shares).
In conclusion, stock-options and phantom-shares, which currently already have legal protection in Andorra, are a very interesting form of remuneration, and increasingly frequent, to attract, retain and motivate the company's strategic team, aligning interests between owners and workers, encouraging the achievement of individual and collective goals and linking all team members in the evolution and success of the company.
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