phantom stock plan

Phantom stock is a payment plan whereby private companies pay selected employees (usually in upper management) many of the benefits of stock ownership without actually giving them stock. A particular company will produce a system to measure their growth. Employees in receipt of the phantom stock will be paid according to the shares allotted to them, as though they had actually invested stock. Participating employees typically receive phantom stocks with certain conditions attached. For instance, the amount of "stock" is typically tied to their salary, and employees usually receive payment upon retirement with a signed agreement that they agree not to compete with their employer or going to work for a competing company. In theory, employers and employees benefit from offering phantom stocks because it gives the latter a financial stake in the company. Simultaneously, the former are not obligated to forfeit control/ownership of the company. For this reason, phantom stocks are popular with smaller, family-owned businesses.

Fast Facts

Benefits of phantom stocks are only taxable upon receipt, not when they are earned by the employee.

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