Phantom Agreement Definition

Phantom shares are a form of employee compensation that gives employees access to stock holdings without actually owning the stock. As with every real share, the value of the Phantom share rises and falls in line with the company`s underlying stock, and employees are compensated by the profits of any valuation of corporate shares on specific dates. For example, if “A” employees received 1,000 phantom shares with a share valued at $20, the current value of the company`s stock would be $20,000. Assuming that, under the terms of the agreement, the employee must stay with the company for five years to fully benefit from the Phantom Stock agreement. This calendar requirement is called the “vesting” period. Based on the Phantom share script, the company`s actual shareholders do not see their shares depreciated because the parallel shares are not identical to the company`s common shares. Ghost shares may be hypothetical, but they can still pay dividends and they have price changes just like their actual equivalent. After a while, the current value of the Phantom Stocks is distributed to participating employees. Phantom stock plans can be a valuable incentive compensation method for companies that are looking for a way to attribute it to changes in the value of the business, but do not want to directly assign shares.

Below are answers to nine frequently asked questions to give you an overview of Phantom Stock`s plans and what they might mean for your business. Equity valuation rights (SARs) are similar to a phantom stock-based program. SARs are a form of employee bonus compensation that corresponds to the valuation of company shares over a specified period of time. Like employee stock options (ESOs), SARs are beneficial to the employee in the event of an increase in the company`s share price; The difference with the dense lies in the fact that workers do not have to pay the exercise price, but receive the sum of the increase in stock or cash. Some organizations may use Phantom Stock as an incentive for superior management. Phantom shares directly link a financial profit to a company performance metric. It can also be used selectively as a reward or bonus for employees who meet certain criteria. Phantom shares can be made available to any employee, either as a total benefit, or based on performance, seniority or other factors. After fulfilling the terms of the plan, employees are allowed to receive a payment in exchange for their units. The amount of payment depends (1) on the number of free movement units they hold, (2) on the value of the units at the time of payment and (3) on whether the plan was intended for the full value of their units or strictly for the increase in value from the date of grant. Suppose an employee received 10 Phantom shares with a starting value of $7 and expects the shares to be valued at $15 on the payment date. At the time of payment, the employee received $150 under a “total value” plan and $80 as part of an “appreciation plan only.” one.

A Phantom Stock plan is a deferred compensation plan that grants the employee a bonus, measured on the basis of the value of the employer`s core stock. However, unlike the actual stock, the premium does not confer any interest in the company. In other words, there is no actual stock given to the employee. Instead, the employee receives units from the phantom stick, and the plan provides that each unit is of the same value as a stem action.