What are phantom shares? How can it be applied to enhance BBBEE scores?

BBBEEOne often hears talk about companies issuing so called “phantom shares” or sometimes even simply called a different class such as Class A, B or C Shares.  Phantom shares are the mechanisms that companies use to incentivise their participants in order to align the participant’s objectives with that of a shareholder.   A phantom share gives a participant an entitlement to a benefit calculated with reference to the variation in the market value of the company’s shares.

In terms of Labour and Employee Benefits 2009/10 Volume 2: Employee Share Plans, a phantom share plan can be used to grant an employee of a company the right to receive a certain amount in cash at a certain time (when the company declares a dividend) and this right is normally subject to the employee’s continued employment and may include certain performance criteria.

The question is – how can a company apply phantom shares to benefit its Broad Based Economic Empowerment (hereafter “BEE’) score? Can they and should they? Most companies are looking for BEE opportunities that will benefit BEE beneficiaries sufficiently, but will not dilute the capital or ownership of the company itself.

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