

Phantom stocks, also known as shadow stocks, is a unique employee benefit plan that functions similar to stock options but doesn't grant actual shares of the company. In this type of plan, mock stocks are granted to the employees that mirrors real shares and their value is linked to the company's stock price. To receive a payout on their phantom shares, employees must have worked for a designated work period (known as the vesting period)
What kind of performance metrics need to be incentivized- Sales, attracting or retaining new talent, reaching key milestones etc.
Consider performance levels, job roles or contributions to determine which employee groups will benefit the most
Decide on factors like vesting schedules, cliff periods, trigger events, and dividend equivalents. Choose a suitable plan between appreciation-only, Full value or performance based on former factors.
Explain to participants the stock plan details ensuring they have understood the benefits, eligibility criteria, vesting schedules, payout triggers and other details. Obtain a formal acceptance from them.
Track events that trigger payouts such as termination, vesting completion, company sale, or IPO. Make timely and accurate payments to the participants.
Employees are granted Phantom stocks at a specific price on a particular date
Requires a minimum time for payment to encourage employee retention
Vested phantom units deliver a cash reward to employee's equivalent to stock growth since the grant date
The company pays out the value of the phantom units in cash, not in company stock
Benefit only from an increase in the company's stock price since the grant date
Payout based on the current market value of the stock, including both appreciation and the original grant price
Ties payouts to pre-defined performance metrics (e.g., sales targets, revenue growth). Chances of receiving higher payout if the company achieves specific goals
Benefit only from an increase in the company's stock price since the grant date
Not subjected to the same level of scrutiny compared to ESOPs, as it doesn't involve actual shares its trading.
Must be recognized in the financial statement to comply with accounting standards as they are treated as liability.
Compliance with employment laws, particularly those related to anti-discrimination and equal pay regulations are required for them.
Phantom stocks themselves are not taxable, but the payouts triggered by them are subject to taxation.