Paper Millionaires: the illusion that retains talet insurance

I've spent years in the insurance and reinsurance brokerage sector, and there's an uncomfortable conversation we need to have about deferred compensation and earn-out programs.

They sell you the dream: "You're not just an employee, you're part of the company. Look at these Class B shares that will make you a millionaire when we sell or go public."

Sounds incredible, right? The problem is what they don't tell you.

THE REALITY OF CLASS B SHARES

Those shares that supposedly make you a "partner" have three characteristics you should know:

No decision-making power. You don't vote. You don't influence strategic decisions. You're a "partner" only on paper.

No liquidity. You can't sell them. You can't convert them to cash. They're yours... but not really.

Subject to uncertain events. You need the company to sell or go public. That could take years. Or never happen.

THE GOLDEN CAGE

I know colleagues who've spent years waiting for "the big day" while watching the theoretical value of their shares grow on internal reports. It looks amazing on paper. But here's the problem:

The value they show you is based on adjusted EBITDA (read: inflated). Independent agencies often calculate an EBITDA up to 50% lower than what the company reports internally.

To meet the requirements of an IPO, a company may need to raise capital to reduce debt. This can lead to significant dilution of your stake. Institutional investors are protected against this dilution. You are not.

Even if the liquidity event occurs, your conversion isn't automatic. There are hurdle rates, additional conditions, clauses that limit your real benefit.

And after the IPO, your shares may have a 5-year vesting period. Plus another 3-5 years of post-IPO vesting to prevent people from leaving. We're talking about 8-10 years waiting for real liquidity... if it ever comes.

Meanwhile, you work believing you have millionaire wealth. In reality, you have an overvalued, diluted, illiquid asset full of obstacles.

THE FINAL BLOW: THE TAX BILL

Here comes the best part (sarcasm included): when you finally receive those shares, many countries consider their "estimated value" as taxable income.

You have to pay taxes on a value the company establishes, but that you can't convert to cash.

Some companies open "extraordinary liquidity windows" so you can sell part of your shares back to them and pay the tax. But this isn't guaranteed. You can end up paying taxes on something that's still not real wealth.

MY REFLECTION

Retaining talent with empty promises isn't strategy. It's manipulation.

If a company wants genuine commitment, it must offer transparency and real value. Not illusions. Not golden cages that look attractive but keep you trapped waiting for something that may never come.

I've seen too many talented professionals turn down better opportunities because they're "close to the exit" or "the IPO is just around the corner." Years later, they're still waiting.

Have you experienced this situation? Have you been offered Class B shares? Have you faced the tax dilemma?

I'd like to hear about your experience. This conversation needs to be more visible in our industry.