Saatchi & Saatchi ran a phantom share option scheme from the late 1990s to 2002.
The advertising giant was then in the process of implementing a savings-related share option scheme for its employees, but found that the complexities of securities laws or exchange controls in some parts of the Far East made it too difficult to implement the same scheme there.
Working with David Craddock Consultancy services, it set up a phantom share option scheme catering for around 300 staff in countries such as China, India, Vietnam, Malaysia and Thailand.
David Craddock, director of the reward consultancy, says: “Individuals had to save just as the employees in the countries where we were working with real shares did, and they had to show evidence of that saving. They were [then] given a payment which equated to the rise in the share value at the point the option was granted and the phantom price.”
To prevent the firm having to fund the cash bonuses from its own coffers, an employee share trust was set up to sit behind its phantom scheme, allowing the market to “do the work” in creating the necessary value that would be passed on to employees.
When scheme members began exercising their options between 2000 and 2002, the trust held enough shares within it that could be then sold to cover the value of the employees’ cash payments, without staff ever receiving the shares themselves.
“The phantom scheme went down extremely well, but particularly [so] in China and India. People made significant sums as many saw a substantial rise in the share price,” says Craddock.