Phantom Units for Store Leaders, Real Shares for Corporate

A cash-settled phantom unit tied to a single location's contribution margin gives a store leader a direct, understandable incentive without the complexity of real equity, such as a 409A valuation, a cap table entry and vesting documentation, for someone whose tenure and role may not warrant that overhead (the plan still needs to be designed to comply with Section 409A's deferred compensation rules). The tradeoff is real: phantom units are a compensation expense paid in cash, not an ownership stake, so they don't build the retention pull of an actual equity grant over time.

This approach fits a brand with dozens of store leaders across many locations, where administering real equity for each one would be a genuine operational burden with limited retention upside to show for it.

A smaller group of corporate leaders, such as merchandising, wholesale and operations, with longer expected tenure and a real stake in the company's overall trajectory, is often a better fit for actual stock options: a strike price set at or above fair market value, standard vesting, and real ownership that appreciates with the whole business rather than one location's performance. The administrative cost per grant is higher, but the population is small enough that it's manageable, and the retention value of real ownership matters more for this group.

Don't extend this structure down to every store leader just because it works well for corporate; the volume alone makes that impractical, and the incentive design that suits a handful of long-tenured executives doesn't automatically suit hundreds of location leads.

Running two incentive structures at once is more work than running one, full stop; someone has to book a phantom unit liability that fluctuates with location performance and a stock compensation expense that follows its own vesting schedule, and reconcile both to the books every close. G&A as a share of revenue is worth watching closely here too¹, since a brand running two parallel incentive systems without a clear division of labor between them tends to see that administrative drag show up in the number.

Assign the phantom unit liability and the real option tracking to different, clearly defined owners from the start rather than letting one person try to hold both in their head; that split alone prevents most of the confusion that shows up later.

Neither platform is built primarily to administer phantom units, that liability typically lives in payroll or a straightforward spreadsheet, but both handle the real options side well. The decision between them comes down to the corporate group's size and trajectory: a small, closely held leadership team gets more value from Pulley's faster, more conversational setup, while a brand anticipating outside investment or a sale benefits from Carta's familiarity to institutional reviewers.

Ask each vendor directly how they'd recommend keeping the two systems, phantom units and real options, clearly separated in your reporting, since a platform that quietly blurs the line between them creates exactly the confusion you're trying to avoid.

The risk isn't in choosing phantom units for stores and real options for corporate, that split makes sense for most brands at this scale. The risk is letting the line drift: a high-performing store leader gets promised something that sounds like real equity during a retention conversation, or a corporate hire's grant gets informally treated like a phantom unit to speed up the paperwork. Either drift undermines the clarity the two-tier structure was built to provide.

Review both populations against the original design at least once a year, and treat any exception as a deliberate, documented decision rather than a quiet one-off that nobody revisits.

Keep the two incentive systems separate by holding to these rules:

• Store leaders receive phantom units tied to their own location's contribution.
• Corporate leaders with longer tenure receive real options in the parent company.
• Retention conversations never promise something that sounds like real equity to a phantom unit holder.
• A corporate hire's grant is never informally treated like a phantom unit just to speed up the process.

A store leader who's never held equity before often assumes a phantom unit works exactly like the stock options a friend at a software company has, appreciating shares they can eventually sell, when in reality it's a cash bonus tied to a formula that could just as easily pay out zero in a weak year. That gap in understanding is worth closing at the time of grant, not after a disappointing payout creates a trust problem with someone the brand is actively trying to retain.

Put the payout formula in writing in plain language, not just legal boilerplate, and walk each recipient through a worked example: what the award would have paid in a strong year at their location and what it would have paid in a weak one. A store leader who understands the real range of outcomes going in is far less likely to feel misled coming out.