What Is Phantom Equity? A Contractor’s Guide to Alternative Incentives

Construction Champions Podcast
Sep 15
3 min read

When contractors think about rewarding their best employees, they usually think about raises, bonuses, or maybe even ownership. But there’s a problem:

Raises don’t build loyalty.
Bonuses don’t create long-term buy-in.
And handing out actual ownership brings liability, tax issues, and loss of control.

That’s where phantom equity comes in.

In this episode of the Construction Champions Podcast, host Ron Nussbaum talks with Chris Buttenham, co-founder of Reins and author of Alternative Equity, about how contractors can use phantom equity to keep their best people without sacrificing control of the business.

What Is Phantom Equity?

Phantom equity, sometimes called phantom stock, is a way of giving employees the economic benefits of ownership, without actually giving them shares or stock in the company.

Think of it like a promise of future bonuses that are tied to the company’s value.

If the company grows and becomes more valuable, the employee receives a payout (often in cash) based on that increased value. They get rewarded as if they owned stock, but without you having to give up actual ownership.

Why Contractors Should Care

Construction companies today are facing:

Consolidation: private equity is buying up independent contractors.
Succession challenges: baby boomer owners are retiring without a clear plan.
Retention struggles: good employees are leaving for a few dollars more per hour.

Phantom equity solves these problems by:

Giving employees a reason to stay long-term.
Allowing owners to plan for succession and exit responsibly.
Helping independent contractors compete with big company incentives.

How It Works in Practice

Here’s how a phantom equity plan might look for a contractor:

You identify a key employee, maybe your project manager or estimator.
Instead of handing them actual ownership, you grant them phantom equity units.
These units don’t give them voting rights or legal ownership.
But as the company grows, the value of those units grows too.
When you sell the company, retire, or hit certain profit goals, the employee receives a cash payout based on their phantom equity.

It’s a win-win:

The employee shares in the company’s success.
The owner keeps full control of the business.

Why Not Just Give Real Equity?

Chris Buttenham explains it clearly:

Real equity brings liability, employees could be on the hook if things go wrong.
Real equity creates tax headaches, for both the employee and the business.
Most employees don’t want the risks of ownership. They just want to share in the upside.

Phantom equity offers the benefits of ownership without the baggage.

Why Formal Plans Beat Napkin Deals

Many contractors rely on handshake agreements or vague “someday I’ll take care of you” promises. The problem?

Those don’t hold up.

Napkin deals lead to:

Confusion
Broken trust
Lawsuits when the owner retires or sells

Formalizing phantom equity plans ensures everyone knows exactly what’s promised and how it will be delivered.

What Contractors Can Do Next

If you’ve ever thought:

“I can’t keep my best guy for more than a few years.”
“What happens to my company when I retire?”
“How do I compete with big firms offering big benefits?”

Phantom equity might be the answer.

It’s not about giving away your business. It’s about aligning incentives so your best people are invested in your success and stick around to help build your legacy.

👤 About Chris Buttenham

Company: Reins
Role: Co-Founder, Author of Alternative Equity
Specialty: Designing phantom equity and incentive plans for small and mid-sized businesses
Website: MyReins.com
Book: Alternative Equity: An Owner’s Guide to Modern Incentives and Phantom Equity