Phantom Shares: Talent retention Without Dilution
A smart alternative to stock options that protects equity and simplifies talent retention.
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One of the biggest challenges for startups in Portugal 🇵🇹 is competing in the global job market while lacking the financial resources to offer above-average salaries .
Portugal has introduced one of Europe’s most favorable tax regimes for stock options and other equity-based incentives for SME and R&D-intensive companies.
Key benefit: Employees are taxed at just 14%, and only when they sell their shares on the market.
But there’s a catch…
For many startups, issuing actual equity is a dealbreaker. The dilution it causes often isn’t feasible — especially for founders and early investors who want to keep control during the company’s growth phase.
So, what’s the alternative?
Phantom Shares – an innovative tool that mimics stock options without giving away ownership.
Instead of real shares, employees receive a cash bonus tied to the company’s valuation increase between grant and exercise.
Why Choose Phantom Shares?
✅ No Dilution – Founders retain full equity
✅ Simpler Implementation – No need for share transfers or notarial acts
✅ Aligned Incentives – Employees are rewarded when the company grows
✅ Cap Table Stability – No changes in shareholder structure
✅ Cash-Based Payoff – Ideal for private companies without exit visibility
The Trade-off
Phantom shares are not as tax-efficient as Portugal’s stock option regime (14% rate), but they:
🔹 Avoid ownership dilution
🔹 Offer implementation simplicity
🔹 Work well for bootstrapped or investor-sensitive startups
There’s also room for optimization when it comes to Social Security contributions – especially with the right legal and compensation planning.
