Phantom stock can be a good alternative to issuing actual stock, allowing companies to compensate and incentivize key employees over the long term without giving up equity ownership. What is Phantom Stock? Phantom stock is a bookkeeping account that simulates the distribution of stock to the executive. Successful businesses need to attract and retain highly qualified employees in order to remain successful. An employee with phantom stock options at $10 would receive $40,000 once EBITDA value rises high enough to bring the phantom stock … Funny Name, Great Idea. 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 … Advantages of Phantom Stock Options. A phantom stock program is a deferred compensation plan that grants employees the benefits of stock ownership without actually giving them any company stock. Give employees the right to buy phantom stock when it’s reached a higher valuation of your choosing. Phantom stock is an agreement whereby a business […] 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 … 1. The value of the executive’s account is tied to the value of the company’s actual stock. Sec. An advantage of a phantom equity plan is that, for a company with significant growth in net worth potential, a phantom equity plan provides a cashless alternative for receiving income as the phantom share appreciates in value. Under Regs. A phantom share is a credit in an employee account for an amount equal to the value of your company's "real" shares. Sometimes a competitive salary alone is not enough to attract talented managers. This is a form of compensation where a company promises to pay cash at some future date, in an amount equal to the market or formula value of a number of shares of its stock. The employee is never actually the owner of the stock. Phantom stock enables your key employees to share in the increase in company value over a time period. In essence, phantom stock is a deferred compensation plan that gives an employee a … Just like real stock, the shares are worth money and rise and fall with the value of the company. Additional phantom stock awards can be made yearly and ultimately the total account value can be used to pay a retirement benefit. Despite the ghostly name, phantom stock is not quite as mysterious as it sounds. Even if the formula provides a value identical to the stock's value, it is not considered a SAR, as its benefit is based upon the phantom stock agreement, not the stock's value. 3) Phantom stock options. Additionally, phantom equity shares do not carry voting rights or similar rights associated with stock ownership. Article by Joanne Cassidy Co-Author: Samuel A. Mills. Unlike "real" stock, phantom stock does not convey any actual ownership in the business. Phantom Stock Plan. 409A - 1 (b)(1), a plan provides deferred compensation to the extent that the employee is legally entitled to the rights under the plan. But there are some potential pitfalls, including tax and regulatory compliance traps, for the unwary. Thus, the payout will increase if the stock price rises, and decrease if the stock falls, but without the recipient actually receiving any stock. 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. Phantom Stock. Phantom Stock is usually preferred over Employee Stock Options by companies since it is a means of sharing the profits of the company without actually parting with the voting rights and giving equity to the employee. Phantom Stock – Profit Distribution & Control of Equity Interest Phantom Stock?