Phantom share schemes (also referred to as shadow share schemes) are a type of employee share scheme that allows companies to offer incentives to employees to help the company achieve share price growth in return for a cash bonus instead of becoming shareholders.

What is a phantom stock agreement?

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.

How does a phantom share scheme work?

Beneficiaries of a Scheme are awarded notional shares or units (not real shares but rather units giving participant employees the right to certain cash bonuses). The notional shares are linked to the issued shares in the share capital of the company

What is a phantom scheme?

A phantom stock plan 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 do you value phantom shares?

The unit value for the phantom plan 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.

How is phantom stock taxed?

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 is the difference between the grant price and exercise price?

When you exercise an option, you purchase shares of the company's stock directly from the company. The grant price (also commonly referred to as the exercise price) is the amount you pay to the company for each share. This price is set by the company at the time the stock option grant is made (grant date).