A. The Phantom Stock plan should indicate the number of Phantom Stocks units or the percentages of participation to be granted to the employee. First, the company may grant an employee a certain number of units or interest as a percentage, plus in increments over a one-year period. For example, a company could first grant a 5% stake to the employee and increase interest rates to 10% after five years of service. Whether granted in advance or over a one-year period, Phantom Stock Units can be transferred either immediately or subject to a voting schedule by the company. In addition, special collection provisions may be included in the Phantom Stock plan to remove the company`s obligation to make payments to an officer at certain events (e.g. B if the employee violates competition restrictions in the plan or is terminated in some way). Companies that implement Phantom Stock plans may inc afford additional costs, particularly when an equity valuation statement is required by an external accounting firm. It offers a degree of appeasement for employees, as Stock Phantom programs are generally secure in cash. This may result in higher selling prices for a business if a potential buyer considers the senior management team to be stable. When implementing Phantom Stocks as employee compensation, companies tend to use “only appreciation” of Phantom Stocks or “full value” shares. Has. As a general rule, the actual payment of benefits is deferred until a predetermined date or until the termination of the employment relationship due to retirement, death or disability.
The Phantom Stock plan should indicate when Phantom Stock payments should begin, to what extent the evaluation of units is usually triggered as described above. In addition, the plan should determine whether the payment of the specified value should be made in a single lump sum or in increments over a one-year period. With respect to staggered payments, the plan should also indicate whether interest is being collected on unpaid payments. When making these provisions, the entity should take into account any phantom stock valuations and the company`s cash flow. Even if payments are made after the termination of the recipient`s service, the method of payment is still, as a general rule, compensation for those who were employed prior to termination. Phantom shares qualify as a deferred compensation plan. A Phantom Stock program must meet the requirements of internal revenue service (IRS) code 409 (a). The plan must be properly reviewed by a lawyer, specifying all relevant details in writing.