Random thought. But isn’t giving a hobo a 0.0001% phantom on a potentially worthless Co a bit of lo’ number of Stox implying Le’ Muny due 2 Dilution, Cuz?
Why not instead of giving 0.0001% of phantom stock options on the TopCo, give 1% for a top engineer to run a non-trivial function at SubCo.
Why? Considering that even under best of all worlds management of SubCo versus global market competition, the minimum participation in cost base on TopCo is 4%, and margins for TopCo are going to be 90%, and Revenue is going to be … well, you guess the logic. You can dilute TopCo as much as you want, if SubCo is held 15% by employees, and 10% of those 15% belong to our engineer, the revenue of the SubCo based on TopCo revenue is predictable and the revenue has preference over all financing structures from debt to equity. If SubCo on top of that is so well
The entire residual claim is going to be profit distribution. And even that is predictable. Profits too high, competitiveness of SubCo goes down. Rivalling company will bid against SubCo. If SubCo profits are too low, top performing SubCo is a restructuring or PE case and can bid for other companies. Profit participation NPV is far more controllable than own dilution at TopCo level. And the mechanisms incentivizes to drive SubCo to high performance.
Makes kind of sense.