Myerson Wealth

 

A Phantom Stock Plan is an Employee Benefit plan that gives the Employee the right to receive future compensation tied specifically to the value of the Company. The quantification of value is determined by the difference between the starting price (usually determined at the initial date of the award) and the vesting price, usually determined upon sale or such other time as deemed appropriate by the Employer. A Phantom Stock Plan is akin to Stock Appreciation Rights (SARs).

A Phantom Stock Plan is usually structured as an Executive Retention Plan by tying the vesting of the bonus to the Employee’s continued employment with the Company. Typically, acceleration of the bonus would be available on the sale of the Company. When the Company is sold (or at a set date in the future if no sale occurs) the Executive would be paid a bonus based on their share of the Company (phantom units of stock) multiplied by the increase in value of those units from the initial date of the award to the date of sale or vesting.

Much like a SERP, these plans can be informally funded with life insurance to provide the promised benefit in the event the alternate vesting date is reached prior to a sale of the Company.

Advantages of a Phantom Stock Plan:

To the Company:

To the Executive:

Disadvantages of a Phantom Stock Plan:

To the Company: If the Plan is funded, the Employer does not receive a tax deduction for amounts contributed to the plan until such time as those benefits are paid out.

To the Executive:

 

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