Phantom options, Phantom Option | legal definition of Phantom Option by Law Insider


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 company stock. This type of plan is sometimes referred to as shadow stock.

He has provided education to individual traders and investors for over 20 years. Article Reviewed on September 28, Gordon Scott Updated September 28, Phantom stock is offered by some companies to senior employees, giving them some financial benefits of owning shares without having actual ownership of company stock.

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What Is Phantom Stock? Like any genuine phantom options, phantom stock's value rises and falls in line with the underlying company stock, and staffers are compensated with profits incurred from any company stock appreciation on specific dates. Phantom stocks are becoming increasingly prevalent in the employee compensation sector as part of a total compensation package and are not restricted to tech companies.

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Some companies tie the award to specific performance goals. The more that employee is valued, the greater the number of shares of phantom stocks they are likely to receive.

Operation of the Plan

Two to five years is common for a phantom stock payout. However, it depends on the agreement made between the company and the employees.

Appreciation Only An appreciation stock will bar recipients from garnering the current value phantom options the phantom stock. Instead, recipients earn any profit—such as stock price appreciation—that the phantom stock might earn over a specific period.

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Let's say under the terms of the agreement, the employee must stay with the firm for phantom options years to benefit fully from the phantom stock deal.

However, they would also earn the current price appreciation on the shares since the date when the deal commenced.

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Pros and Cons of Phantom Stock As the case with any financial investment instrument, there is no shortage of positives and slightly fewer negatives with phantom stock deals. Pros Phantom stocks are a solid motivational tool to keep key employees on board for the entire vesting period and to boost employee productivity. When the phantom stock price appreciates, the recipient benefits, too.

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Instead, phantom shares are given to employees with no money changing hands. Company control of phantom stocks is advantageous to employers, as well.

The sponsoring company determines a phantom stock price through an internal or external valuation of the company. Employees are awarded some number of phantom options that carry specific terms and conditions.

Under a typical phantom stock charter or contract, companies can dictate the structure of the agreement. For example, the company can control the level of equity participation in the form of dividends paid out to employees.

Cons Companies that implement phantom stock plans can incur additional costs, particularly if any stock valuation overview needs to be completed by an outside accounting phantom options.

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For phantom options, the company calls all the shots in a phantom equity deal, giving them little control or maneuverability if the share price goes south. Taxes factor into phantom stock deals, too. For employees, phantom stocks come with limits that normally are par for the course for regular company stockholders.

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Key Takeaways Phantom stock plans can be both a good employee motivation tool for employers and a solid cash incentive plan for employees. Phantom stock plans provide more upside than downside.

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  • Enquiries Phantom Share Option Plan A phantom share option plan is a cash bonus plan under which the amount of the bonus is determined by reference to the increase in value of the shares subject to the option.
  • Jump to navigation Jump to search Phantom stock is a contractual agreement between a corporation and recipients of phantom shares that bestow upon the grantee the right to a cash payment at a designated time or in association with a designated event in the future, which payment is to be phantom options an amount tied to the market value of an equivalent number of shares of the corporation's stock.
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They are increasingly offered as part of employee compensation packages. Article Table of Contents Skip to section Expand.