In the same vein, if your stock's value declines in the interim - to, say, $5 at vesting - the cash payout would be $5 per unit. Phantom stock is usually used when a company wants to give stock-like incentives to some employees-without providing actual stock, and usually without providing voting rights. "Appreciation Only" Phantom Stock Plans. A phantom stock plan is a form of long-term incentive plan (LTIP) typically used by privately held businesses. Privately held companies have unique organizational traits that require a substantially different approach to executive compensation. Phantom stock plans are a type of deferred compensation plan that can be used by public and private companies. . There isn't one exact definition of what phantom stock is or how companies use it. One form of phantom stock is Stock Appreciation Rights. Accounting Phantom stock plans are considered "liability awards" for accounting purposes (assuming they will be settled in cash rather than stock). Phantom Stock Plan. Phantom stock is a form of employee compensation that gives employees access to stock ownership without actually owning the stock. This is commonly structured in one of three ways: a phantom stock plan, stock options, or stock appreciation rights (SARs). Phantom stock generally represents a company's unsecured and unfunded promise to make a payment to an employee or other service provider upon certain specified events (e.g., change in control or termination of employment) equal to the value of a specified number of shares of the company. It is an employee benefit that gives employees the opportunity to purchase company shares at a predetermined price, known as the "equity value.". of the company's stock, similar to a stock option or stock appreciation right. Anonymous Director of Corporate Treasury Phantom Stock Plan - private company, 700 employees, $0.5B revenue, $10M NI. A phantom stock plan is a bonus scheme that is referred to as a 409(a) plan by the Internal Revenue Service (IRS). If the plan fails to satisfy the requirements of that section, the key employee would be taxed on the unpaid amount deferred under the plan and would be subject to penalties. In the example above, an employee given 5,000 shares would be entitled to cash in those shares for $50,000 at a future date you determine. Phantom stock, sometimes known as "shadow stock" or "ghost shares," allows employees to share the company's riches and success. Rewarding employees with company stock has been shown to provide numerous benefits for employees and the employer. Once these two answers are known, the phantom share price is calculated as the former (the value) divided by the latter (the number of shares). Ready to Speak with a Phantom Stock Expert Now? Staffers are compensated with profits incurred from any company stock . Our turnover is over 20%, so we are looking for a way to retain leaders of our organization. Accounting Treatment for Phantom Stock Plans The basics of stock appreciation rights Download . 1. For private companies, a key advantage of granting cash-settled phantom stock rather than traditional equity awards "Phantom Stock" means a contractual right to receive an amount in cash equal to the Fair Market Value of a share of Common Stock on the Settlement Date. The plan is designed to align the interests of participating employees with the financial success of the company by giving them an award that mimics stock ownership. Avoiding minority shareholders, limits on the number of shareholders based on corporate . What is a phantom stock plan? It ties a future reward to the value of the business without diluting owner equity. Alternatively, a phantom stock plan can be designed so that This form contains alternate clauses so that it can be used for a full-value award plan or an appreciation-value award plan. By Staff Report. Under this plan, employees are not given any shares of the company's stock. This is sometimes referred to as phantom shares, simulated stock, or shadow stock.It is basically offered as a bonus for staying with the company for a long time and the hard work that employee puts in. How does a company establish the price for phantom shares? One need not be a full time employee to receive phantom stocks. This Standard Document contains drafting notes with important explanations and drafting tips. Phantom stock plans can be a good employee motivation tool for the company and a solid cash incentive plan for employees. The two main types of phantom stock plans are: 1. This form contains alternate clauses so that it can be used for a full-value award plan or an appreciation-value award plan. 1. This form contains alternate clauses so that it can be used for a full-value award plan or an appreciation-value award plan. A phantom stock plan is a deferred compensation plan that awards the employee a unit measured by the value of a share of a company's common stock, or, in the case of a limited liability . Private and public companies utilize long term incentive plans as a retention tool, to align key employees with company performance over a three-to-five-year period and to be more competitive for attracting key talent. Even if an event goes otherwise and the . Like any genuine stock, phantom stock's value rises and falls in line with the underlying company stock. Asked on Aug. 5, 2014 My company considers issuing a phantom stock plan as an incentive mechanism for some of our management. As with many other IRS-regulated plans, there are some dos and don'ts that are . They are often used in privately held companies to provide a long-term incentive to key employees while also minimizing the number of shareholders. Here's sample verbiage from one such agreement. Call 1-888-703-0080 or complete our contact form. Here are answers to nine frequently asked questions about phantom stock plans and what they could mean for your company. The answer involves two variables: (a) the presumed value of the company, and (b) the number of shares to be used in the plan. Definition and Example of Phantom Stock. Phantom stock plans, also known as equity compensation plans, equity pay plans, stock bonus plans, or phantom equity plans, are a form of employee stock option plan (ESOP). These employee incentive plans are often used in addition to other employee benefits, such as stock option plans. Also known as simulated stock, shadow stock, or synthetic stock, these plans allow key employees to share in company growth without owning company shares. of the company's stock, similar to a stock option or stock appreciation right. A phantom stock plan is employee compensation that gives selected employees, mostly in senior management, benefits of stock ownership without actually giving them company stock. Give employees shares valued in full at the price you established in your valuation. Phantom stock is used by companies as an approach to long-term incentive plans and as a mechanism for creating additional performance-based awards. The Phantom Stock Award component provides a monetary award based on units of IBERIABANK Corporation stock where the award's value will follow the stock's price and incentivize associates to drive long-term company success as an element of our total compensation package. However, with phantom stock your tax deduction (i.e., the company's) is higher than it would have been with actual stock. Historically, public firms mainly employed phantom shares to create cash for . of the company's stock, similar to a stock option or stock appreciation right. This white paper explains why phantom stock is garnering so much attention recently among private companies and how it can positively impact the performance of key talent in an organization. A phantom stock plan is a type of employee incentive plan that allows participants to earn benefits based on the value of the company's stock. Phantom Stock Plan: A phantom stock plan is an employee benefit plan that gives selected employees (senior management) many of the benefits of stock ownership without actually giving them any . Phantom Stock Agreement. Companies accomplish this by giving employees a share in their equity and a retirement plan to ensure they will have sufficient funds later. Generally, under these structures, at the time of sale the plan triggers a payout to the executive that is taxed as compensation when paid. As such, the sponsoring company must recognize the plan expense ratably over the vesting period. More Flexibility - Private and public companies are both eligible for phantom stocks, which are highly flexible. 11, 2003. Jul. Also known as shadow stock, simulated stock, or phantom shares, phantom stock is provided as a bonus for hard work and longevity. A form of phantom stock plan for a private, closely-held company. For private companies, a key advantage of granting cash-settled phantom stock rather than traditional equity awards For private companies, a key advantage of granting cash-settled phantom stock rather than traditional equity awards Phantom stock plans and stock appreciation rights (SARs) are two types of stock . "Plan" means the Old Dominion Freight Line, Inc. Phantom Stock Plan, as herein set out, or as duly amended. Sample Phantom Stock Agreement. In the first case (actual stock), your deduction was for $50,000, thus a tax benefit of $20,000 (assuming 40% bracket). So, if an employee is issued phantom stock when your stock is valued at $10 and the award vests when your stock is valued at $50, the cash payout will be $50 per unit. Phantom equity plans are particularly useful for private companies without publicly traded shares of stock. For such companies, phantom stock can be an ideal solution. Maintained USA (National/Federal) A form of phantom stock agreement to be used by a private, closely-held company when granting phantom stock awards to employees under a phantom stock plan. 2.20. In an "appreciation only" phantom stock plan, the plan participant receives a cash payment equal to the difference between the company's stock price at redemption and the issuing price of the phantom stock. Phantom stock plans are typically used in private companies where owners wish to motivate and reward employees based on long-term value creation, and restrict the actual ownership of the company's shares. 2.19. For example, assume the issuing price . A phantom stock plan is a form of deferred compensation and will need to be carefully structured to avoid any adverse tax consequences to the key employee under Section 409A. The term can apply to any reward that takes time to mature. With the phantom stock example, you get to deduct the full $90,000, resulting in a tax benefit of $36,000. Varying accrual schedules can be found in the market. Stock Appreciation Rights (SARs) are a form of phantom stock. Contribution and Distribution.

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