Franchisees: Give Your Stock to the Best Employees

This Plato’s Closet franchisee in Colorado found an often overlooked solution to a common problem – give outstanding employees equity ownership in stores (more precisely, stock in the franchisee entity or management company of the franchisee that owns the stores).

What if the franchisee is not willing to accept new owners?

Offering a “phantom stock” or “stock appreciation rights” may be an attractive alternative for franchisees in granting stock to employees. A corporate attorney with experience in this area should be able to set this up for you….I have set these compensation plans in my legal practice.

A “stock appreciation right” is granted to employees and enables the employees to profit from the appreciation in value of a set number of shares of company stock over a set period of time. The valuation of a stock appreciation right operates exactly like a stock option in that the employee benefits from any increases in stock price above the price set in the award. The stock price for private companies is determined by a set valuation formula or outside firm selected by the company’s management. However, unlike an option, the employee is not required to pay an exercise price to exercise them, but simply receives the net amount of the increase in the stock price in either cash or shares of company stock, depending on plan rules. If the employee’s employment is terminated, the stock appreciation rights are revoked.

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