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Phantom stock generally represents a companys 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.
As described, phantom shares are usually redeemed in cashthe 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 phantom stock plan must be supported by more than a verbal commitment.
Pros And Cons Of Phantom Stock PROSCONSThe plan is based on cash rather than the actual stock. If an employee retires, the company will have no issue handling half of the vested equity.If the company is publicly traded, employers must declare the status of the phantom stock program to all participants annually.5 more rows Jul 19, 2022
Take a look at five tips for creating a phantom stock plan below: Understand what you are and arent offering. Set a proper valuation. Create your shares. Decide how to award stock. Set a reward schedule.
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).

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Take a look at five tips for creating a phantom stock plan below: Understand what you are and arent offering. Set a proper valuation. Create your shares. Decide how to award stock. Set a reward schedule.
Phantom stock generally represents a companys 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.
The answer involves two variables: (a) the presumed value of the company, and (b) the number of shares to be used in the plan. 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).
A phantom stock plan is a deferred compensation plan that awards the employee a unit measured by the value of a share of a companys common stock, or, in the case of a limited liability company, by the value of an LLC unit. However, unlike actual stock, the award does not confer equity ownership in the company.
Build A Plan Be clear on exactly what you want your plan to accomplish. Give some thought to how big your future company may be compared to todays company. List your potential plan participants. Carve out a budget. Considering your goals and value sharing opportunity, select the right plan for your company.

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