Ep. 495 — Ryan & Kim | How to Share Your Company's Upside Without Giving Away Equity

5 min read

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Episode Summary

You’ve got one person you can’t afford to lose, running an outcome you know you can’t hit alone. They’ve started asking about the upside, and your gut says give them a piece of the company. Then you remember what real equity costs. A K-1 every April. A cap table. Permission required to sell your own business. This is the third milestone of Module 8, where Kim and I get into phantom stock: real money tied to real valuation growth, without putting anyone on your cap table. It’s a contract and a balance sheet liability, pegged to the same four numbers every valuation already runs on. The catch is there’s no shortcut here the way there was on the annual plan. Build the owner’s goals, the valuation, and the five-year model first, or you’ve got it backwards. We get into the one honest test for whether someone earned it at all (can you hit the five-year number without them?), why you never tie the payout to a sale, and the worked example where sharing 5% of a $21.01M outcome costs you nothing, because it never existed without the person who earned it.

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Top 10 Takeaways

  1. A salary rents someone’s effort. Long-term comp ties them to the value you build together.
  2. The one honest test: if you can hit your five-year number without this person, don’t grant phantom stock. Go hire someone who wants a salary.
  3. There’s no shortcut on a long-term plan. Build the model, the valuation, and the five-year forecast first, or you have it backwards.
  4. Phantom stock is a contract and a balance sheet liability. No cap table, no K-1, no operating agreement.
  5. Real equity ropes you together on taxes, distributions, and the decision to sell. Phantom stock doesn’t.
  6. Never tie the payout to a sale. Do that and your executives start needing you to sell.
  7. Peg it to a cash flow valuation, not the private equity premium someone might pay someday.
  8. Have a neutral third party value the company every year. Ten to fifteen grand ends the argument before it starts.
  9. Size it like a budget. Percentages first, then meaningful dollars, then what the company can actually afford.
  10. The math is the hard part. Once it’s clear, the attorney’s contract is about three grand.

Sound Bites

“I’ve got my base. I’ve got my annual. Why the need to tie me into a long-term comp plan?” (@00:02:27) — Kim Clark

“It shouldn’t be possible without this person. Otherwise, don’t do the phantom stock. Go hire someone who just wants a salary.” (@00:17:07) — Ryan Tansom

“You’re building a prison, and you’re probably going to be stuck in it.” (@00:21:39) — Ryan Tansom

“The premium is not realized until the premium is realized.” (@00:51:07) — Ryan Tansom

The Worked Example

The phantom stock math runs on the same Advanced Solutions case study that threads through the curriculum. The numbers are locked.

  • Normalized EBITDA grows from $1.5M to $3.0M over five years.
  • The multiple expands from 4.52× to 6.67× as company-specific risk falls.
  • Enterprise value reaches $20.0M. With $1.0M in net cash, market equity is $21.01M.
  • Sharing 5% of that equity outcome is roughly $1.05M of phantom stock liability, accrued as the executive vests.

The point: that $21.01M outcome was built on the back of the person earning the phantom stock. If the owner could reach it without them, the grant shouldn’t exist. If they can’t, then 5% of an outcome that only happened because of that person costs the owner nothing they would otherwise have had.

Resources Mentioned

  • Executive Compensation Workshop (June 25, 2026) — The $100 workshop where you build your own executive comp plan tied to your ownership goals. — ryantansom.com
  • 90-Day Boardroom Blueprint — The onboarding program where Ryan walks owners through the iBD Ownership OS, the financial model, the valuation, and the five-year forecast. — Boardroom Blueprint
  • VisionLink (Craig Rutledge) — Long-term incentive design firm where Craig Rutledge is a Principal. — visionlink.co
  • Prairie Capital Advisors — Chicago-based investment bank for ESOP, MBO, and third-party PE valuations. — prairiecap.com
  • Dinsmore (Compensation & Benefits) — National law firm for drafting phantom stock contracts. — dinsmore.com
  • Ryan Tansom’s YouTube — ESOP series — Four-part, ~9-hour ESOP series featuring Corey Rosen of the NCEO. — youtube.com/@ryantansom

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