WHY
Equity is our most precious asset, we need to leverage it wisely to access financial and attract talent.
We need a world class team and equity can help us across the whole lifecycle:
Hiring
Retention
Motivation
Alignment
Sense of Community
We want to reward teams meaningful and fair across all regions
MOSTLIES are FEARLESS - we explore uncharted territories and if we find a treasure, everyone deserves a piece.
WHAT
PSOP = Phantom Stock Option Plan
Unlike in the US or the UK, in Austria it is not easy for a company to hand out real stock options to employees – start-ups are using special programs that try to “mirror” established stock option programs
ESOP/PSOP refers to the legal framework for giving options to employees
The Plan lays out the standard terms and provisions for phantom stock option grants by the company
The Phantom Shares shall grant to the Beneficiaries rights to bonus payments on a contractual basis against the Company
The Phantom Shares shall not establish a corporate or a shareholder relationship of whatever kind
By the issuance of the Phantom Shares, the Beneficiaries shall neither become a shareholder of the Company nor be granted an entitlement to receive or subscribe for any actual shareholding in the Company
Accordingly, no voting rights or co-determination rights (e.g. approval or veto rights) in relation to the Company are granted to the Beneficiaries by the Phantom Shares
The Beneficiaries shall also not be granted any (actual or virtual) subscription rights in case of a capital increase or the issuance of other equity or equity-linked securities of the Company
HOW
PSOPs are quite a complex thing! We worked with our lawyers to make this as simple as possible, but the legal framework is still quite “heavy”.
Please study the legal framework (consisting of the general “Phantom Share Participation Plan” and your individual “Allocation Agreement”).
In case of any questions don’t hesitate to ask!
Grant
The company allocates rights which entitle to certain bonus payments by the Company calculated on the basis of Phantom Shares in the case of a liquidity event.
The beneficiary receives the following rights:
The total amount of granted options - which need to vest over the “vesting period”
The right to purchase vested options at a pre-defined price – “strike price”
Vest
The granted options vest over a period of 48 months (4 years)
In case of a leaver event before 12 months of tenure all granted options shall be cancelled – this is often referred to as „Cliff year“
After the one-year anniversary the remaining 75% vest monthly
Strike Price
Fixed price for a given option grant – the amount an employee must pay to buy each phantom share. It is also sometimes referred to as the exercise price.
For all new grants we will apply a standardized strike price. As a base we use the price paid in the last round by investors and apply a discount of 25%.
Leaves during vesting period
Leaves < 3months – vesting continues (e.g. 1 month of unpaid vacation, longer illness)
Leaves > 3 months and < 6 months – vesting pauses (from day 1 of the absence) and resumes at the date of return
Leaves > 6 months – vesting halts with day 1 of absence and all unvested shares are cancelled
Excluding Family leave (maternity leave, paternity leave) – vesting continues for 12 months and then pauses and resumes at the date of return
Exercise
There are only two events when you need to decide:
Sale of the company (Exit or IPO*) à in this case you would likely like to exercise your options
Leaver Event (Termination of contract) à you can make up your mind
In case of exercising during an exit event 100% of the price will be deducted from the payout.
At a leaver event, you have the right to exercise the vested phantom shares by:
Paying 50% of the price ((vested options x agreed strike price)/2 = “Activation Payment”) within 6 months (“Exercise Period”) otherwise all vested and unvested options will be cancelled
The remaining 50% ((remaining vested options x agreed strike price)/2) will be deducted at the exit event from the payout
Exception: Termination for good cause (“Entlassung”) results in loss of all vested and unvested Phantom Share.
Benefit
An exit event is defined as sales of 50% of the capital in one or several transactions.
If the transaction is split in shares and cash, the goal should be to “mirror” this as closely as possible*.
X = [(P/1000) – S] * V
T
where
X = Gross Claim in relation to the Vested Phantom Shares of the Beneficiary
P = the cash consideration or, as the case may be, in case of a Cash Election the value of the non-cash consideration
S = the Strike Price (less any Activation Payment) per Vested Phantom Share
V = the number of Vested Phantom Shares
T = 1 + the percentage of applicable Taxes to be borne by the Company in relation to the relevant payment
Calculation Example
Senior Software Engineer
Joined MOSTLY AI in 2021 (pre-Series B)
PSOP allocation July 1st, 2022: 32,000 shares (worth ~ 38,000 EUR)
Leaves MOSTLY AI June 30th, 2024, vested shares: 16,000 (2 years)
Would need to decide by December 31st, 2024, whether would like to execute the options
If yes, would need to pay for 50% of shares (8,000 x 3 EUR) = 24,000 EUR – Activation payment
The strike price of the remaining 50% of shares would be deducted from an exit event payment
E.g., exit with a price per share of 10 EUR
Payment: 16,000 x 30 EUR = 480,000 EUR
Minus: 8,000 x 3 EUR = 24,000 EUR (remaining 50% strike price)
Payout 456,000 EUR (taxes to be deducted from that)
TL;DR
A recording of the presentation/call is available here.