A. A phantomstockplan is a deferred compensation plan that provides the employee an award measured by the value of the employer's common stock. However, unlike actual stock, the award does not confer equity ownership in the company. In other words, there is no actual stock given to the employee.
Is phantomstock a good idea?
Phantom stock is not a good idea if the company is planning on issuing them to most or all employees, especially if the shares will be paid out when the employee leaves the company or retires. In that case, phantom shares may be ruled illegal because of the Employee Retirement Income and Security Act (ERISA).
What are phantom grants?
A phantom grant is a contract right to receive a percentage of the sale proceeds upon the sale of the company. It tracks the value of the equity of the company, but is not equity. It does give them the “full value” of the company, unless drafted in a manner to exclude it.
What are phantom shares worth?
Phantom stock is an employee benefit where selected employees receive benefits of stock ownership without the company giving them actual stock. It is worth money just like real stock, and its value rises and falls with the company's actual stock (or what the company is valued at, if it's not a publicly traded company).
How is phantomstock paid out?
Rather than getting physical stock, the employee receives mock stock. Even though it's not real, the phantomstock follows the price movement of the company's actual stock, paying out any resulting profits.
How is phantomstock value calculated?
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). The value of the company can be established by a variety of means, including: Stock exchange (for public companies) Third-party appraisal.
How does a phantomstockplan work?
A phantomstockplan is a deferred compensation plan that provides the employee an award measured by the value of the employer's common stock. However, unlike actual stock, the award does not confer equity ownership in the company. In other words, there is no actual stock given to the employee.
How are phantom units taxed?
For both phantomstock and SARs, employees are taxed when the right to the benefit is exercised. At that point, the value of the award, minus any consideration paid for it (there usually is none) is taxed as ordinary income to the employee and is deductible by the employer.May 9, 2018
Do you pay taxes on phantom stock?
Phantom stock can, but usually does not, pay dividends. When the grant is initially made, there is no tax impact. When the payout is made, however, it is taxed as ordinary income to the grantee and is deductible to the employer.
What happens to phantomstock when a company goes public?
The phantomstock becomes a liability that the company must eventually convert to either cash or company stock. In privately held businesses, company stock is rarely an option. employees like these plans as any phantomstock they receive is not taxable until converted into cash by the company.
Why are phantom stocks issued?
Phantom stock is an employee benefit where selected employees receive benefits of stock ownership without the company giving them actual stock. Also known as shadow stock, simulated stock, or phantom shares, phantomstock is provided as a bonus for hard work and longevity.
What are phantom options?
Phantom options are designed to mirror traditional share options but with the gain to the employee being paid in cash. The intention behind a phantom option is similar to a share option in that the option holder is motivated to grow the value of the underlying shares that are subject to the phantom option.
How are phantom shares paid?
As described, phantom shares are usually redeemed in cash—the payment being treated like a bonus. However, should the plan agreement allow it, the payment obligation may be satisfied by distributing actual stock to the employees. A phantomstockplan must be supported by more than a verbal commitment.
Can phantomstock be sold?
When a business is sold, the phantom stockholder might receive an amount equal to the cash the recipient would receive if he or she owned the same percentage of the corporation's stock (or the appreciation in value of an equivalent amount of stock).
How do you set up a phantomstock plan?
- Understand what you are and aren't offering.
- Set a proper valuation.
- Create your shares.
- Decide how to award stock.
- Set a reward schedule.
How do you value phantom stock?
The unit value for the phantomplan is set equal to the unit value of the real shares. This approach is used when the company desires to keep the value of real shares and phantom shares equal (using the same formula). For example, when buy/sell agreements use the same formula used for the phantom plan.