Real Equity vs Virtual Shares in Bulgaria: A Corporate Governance Playbook for Employee Incentives
As competition for highly skilled talent continues to grow, equity-based employee incentives are increasingly used by companies to attract, motivate, and retain professionals while aligning employee interests with long-term business performance.
In their article, Viktor Mitev (EY Bulgaria) and Dimitar Karastoyanov (Karastoyanov, Dobrenova & Associates Law Office) examine the key differences between real equity participation and virtual shares as employee incentive mechanisms used in Bulgaria.
Real equity incentives grant employees actual ownership in the company, such as shares in a joint-stock company (AD) or participation quotas in a limited liability company (OOD). This approach can strengthen alignment between employees and company growth, but it may also introduce additional corporate governance considerations, as employees become shareholders with statutory rights.
An alternative approach is the use of virtual shares (phantom equity). These instruments do not transfer ownership but instead provide employees with financial rewards linked to company performance or liquidity events, such as an exit. Virtual share schemes allow companies to incentivize employees while maintaining a simplified shareholder structure and greater flexibility in designing vesting conditions and participation rules.
The authors also highlight that Bulgaria currently lacks a dedicated tax framework for stock-based compensation, which makes it important for companies to carefully assess the legal, tax, and accounting implications when implementing such programs.
In practice, many organizations adopt a hybrid approach, granting real equity to key leadership while using virtual share plans to incentivize a broader group of employees.