Almost every Swiss startup reaches the moment when salaries alone cannot carry the hiring plan, and the founders start promising "a piece of the company". The promise is easy. Choosing the right instrument to deliver it is not — and the choice made early, often casually, shapes the cap table, the administrative burden and the tax conversation for years.

The real choice: ownership or a contractual claim

Strip away the acronyms and there are two families of instruments. Either the employee actually becomes a shareholder — now or later — or the employee holds a contractual claim against the company that pays out as if they were one.

Real equity means shares, or options that convert into shares. The holder eventually appears in the share register, can attend the general meeting, and owns something that exists independently of their employment contract. Contractual instruments — phantom shares, virtual options, and similar constructions — mimic the economics of a share without creating one. The employee gets a right to a payment tied to an exit or to the value of the company, defined entirely by a contract.

Neither family is better. They solve different problems, and most of the design work lies in matching the instrument to the company's stage, investor expectations and appetite for administration.

Options and shares: real equity, real formalities

Options are the classic startup instrument: the right to buy shares at a fixed price in the future, usually earned over a vesting period. Direct share ownership — sometimes used for early, senior hires — puts the equity in place immediately, typically subject to reverse vesting or repurchase rights.

The strengths are alignment and credibility. Employees holding real equity share the upside the same way founders and investors do, and sophisticated candidates — especially those with experience abroad — often expect it. The costs are structural. Real equity requires shares to actually exist or be creatable, which means capital measures, general-meeting involvement and a plan that fits the articles and any shareholders' agreement. Every exercised option produces a real shareholder, with information rights and a signature you may one day need. And dilution is genuine: investors will treat the option pool as part of the fully diluted picture and negotiate accordingly.

A crowded cap table full of small minority holders is a manageable problem, but it is a problem someone has to manage — through pooling arrangements, drag-along clauses, and disciplined register-keeping.

Phantom shares: the economics without the shareholders

Phantom shares (and their sibling, virtual stock options) give the employee a contractual right to a cash payment calculated as if they held shares — typically triggered by an exit. No new shares are issued, no register entries, no general-meeting mechanics, no minority shareholders. For companies that want to move fast and keep the cap table clean, this simplicity is the entire point.

The trade-offs mirror the benefits. The employee holds a claim against the company, not property — its value depends on the plan wording and on the company's ability to pay when the trigger fires. In an exit, phantom payouts are cash obligations that reduce what shareholders receive, and buyers scrutinize them closely. Psychologically, a well-explained phantom plan works, but "virtual" can sound second-class to candidates who expected stock. Precision of drafting is everything here: what exactly triggers payment, how value is computed, and what happens to unvested and vested rights when someone leaves.

RSUs and the questions that matter more than the label

Restricted stock units — a promise to deliver actual shares once vesting conditions are met — sit between the two families and appear mostly in later-stage companies, often those benchmarking against US practice. They eventually create real shareholders, with the same structural consequences as options.

Whatever instrument you choose, the same design questions decide whether the plan works:

  • Vesting. Over what period do rights accrue, is there a cliff, and what accelerates on an exit?
  • Leaver terms. What do good leavers keep and bad leavers lose? This is where most disputes arise, and where sloppy drafting is most expensive.
  • Pool size. How much of the company is set aside — and do your investors agree on how it counts toward dilution?
  • Governance. Who administers the plan, decides discretionary questions, and keeps the records a future diligence team will ask for?

Two closing warnings

First, tax. Every one of these instruments has tax and social-security consequences — for the employee and for the company — and they differ significantly between instruments and cantons. Get specific tax advice before the plan is signed, not after the first grant. We say this without exception.

Second, informality. The most expensive participation plans we see are the ones that were never properly made: percentages promised in offer letters, spreadsheets standing in for registers, grants nobody resolved. Years later, at financing or exit, these promises resurface with leverage attached. Whether options, phantom shares or RSUs fit your company depends on the facts — if you are designing a plan or untangling an inherited one, we are happy to discuss it.