What is a phantom stock option plan?

A phantom stock plan is a deferred compensation plan that awards the employee a unit measured by the value of a share of a company's 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.

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Proposed book value phantom stock plan with appendices for First...

Orange California Proposed book value phantom stock plan with appendices for First Florida Bank, Inc.

Name: Orange California Proposed book value phantom stock plan with appendices for First Florida Bank, Inc.
Brand: US Legal Forms
Rating: 4.78 (343 reviews)

Category:

Corporations - Public - Incentive Compensation Plans

State:

Multi-State

County:

Orange

Control #:

US-CC-20-161K

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Instant download

Description

This is a multi-state form covering the subject matter of the title.

Employee Termination Statement

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FAQ

A Phantom Stock Option Plan, also known as a Stock Appreciation Rights (SAR) plan, is a deferred cash bonus program that creates a similar result as a stock option plan. The sponsoring company determines a phantom stock price through an internal or external valuation of the company.

A phantom stock plan is an employee benefit plan that gives selected employees (senior management) many of the benefits of stock ownership without actually giving them any company stock. This type of plan is sometimes referred to as shadow stock. Rather than getting physical stock, the employee receives mock stock.

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).

Phantom stock payouts are taxable to the employee as ordinary income and deductible to the company. However, they are also subject to complex rules governing deferred compensation that, if not properly followed, can lead to penalty taxes.

Phantom stock generally follows the same accounting rules as all non-qualified deferred compensation plans in that com- panies must take a book expense as the award accrues. For example, a $50,000 award would result in an expense charge divided evenly over the vesting period.

A phantom stock plan is a deferred compensation plan that awards the employee a unit measured by the value of a share of a company's 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.

For both phantom stock 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.

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).

A stock appreciation right (SAR) is much like phantom stock, except it provides the right to the monetary equivalent of the increase in the value of a specified number of shares over a specified period of time. As with phantom stock, this is normally paid out in cash, but it could be paid in shares.

How do phantom shares work? Phantom schemes normally work in very similar ways to more traditional share incentive schemes, but the payout is in the form of cash, rather than shares. The cash bonus awarded under phantom share schemes is typically based on the uplift in company share value.

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Orange California Proposed book value phantom stock plan with appendices for First Florida Bank, Inc.

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