Phantom stock appreciation rights parallel the stock, and performance units are tied to financial formulas. The value of that unit over time can go up or down based upon, for example, return on equity, and the number of units that you receive is tied to one or two other performance measures. Kuhns explained the reasons for using the different forms of equity. Owner equity creates a broad focus, and because the employee is an investor-partner, the risk is shared. The employee is no longer a creditor of the company.
Controlled equity has a more narrow focus.
Simulated equity has the narrowest focus of the three described, according to Kuhns. With respect to participation, the company defines who they want to have a fully vested personal interest in the business in the context of specific objectives for specific business reasons. In concluding, Kuhns advised that equity can mean more than ownership involvement, and that consideration of the form of equity to provide is critical. Pulling back or away is very difficult and potentially damaging. Don't enter into it until you know what you're doing, and by all means make sure that you're not going to back away from it once you start to do it.