Definition and Example of Phantom Stock. Exercise of Units 3. Setting a phantom stock plan is a lot cheaper than setting up ESOPs. This is commonly structured in one of three ways: a phantom stock plan, stock options, or stock appreciation rights (SARs). Grant 2. It saves the employer a lot of money. Phantom Stock Unit Agreement Contract Templates Phantom Stock Unit Agreement - Table of Contents (based on 6 contracts) 1. Phantom shares provide benefits similar to stock ownership but without actually issuing company shares. What's the purpose? A phantom stock plan, also called a shadow stock plan, is a type of deferred employee compensation plan where the type of shares issued to plan participants are phantom shares instead of company shares. For full-value award plans, the amount of the cash payment for each phantom unit equals . The phantom stock plan has many advantages for a company. Amended and Restated Incentive Plan (the "Plan"). Phantom stock is a form of employee compensation that gives employees access to stock ownership without actually owning the stock. A phantom stock plan is a form of long-term incentive plan (LTIP) typically used by privately held businesses. In addition, given the large number of income trusts still extant, a separate ("JW") for general informational purposes only and do not . Sl. Payment of Phantom Stock Interest. 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. Stock Option Award. Non-Assignability 6. How does a company establish the price for phantom shares? Award of Phantom Shares 2. The defined terms used but not defined in this form include "Phantom Unit" and "Payment Event." See Phantom Stock Plan (Private Company). STOCK OPTION PLAN EXAMPLE PROVIDEDBY JACKSON WALKER L.L.P. Phantom Stock: What Is It? Grant of . Delivery/Certificates 4. The other document needed is a Phantom Stock Award that provides for a specific number of units to be granted initially, and perhaps any additional units to be granted in the future upon . Termination upon Merger 8. Sample Phantom Stock Agreement Employer, Inc. A Phantom Stock Plan is one of two primary documents that is drafted. The Phantom Stock Award component provides a monetary award based on units of IBERIABANK Corporation stock where the award's value will follow the stock's price and incentivize associates to drive long-term company success as an element of our total compensation package. They include: Phantom stock is highly flexible and they can be used by both private and public companies. These entitle the holder only to a payment at a liquidity event equal to the increase in value of the LLC (based on a . Phantom stock plans, also known as equity compensation plans, equity pay plans, stock bonus plans, or phantom equity plans, are a form of employee stock option plan (ESOP). Phantom stock plans get their name from the hypothetical units that are used within the plan. Contribution and Distribution. 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. This Standard Document has integrated notes with . However, unlike actual stock, the award does not confer equity ownership in the company. To end up with $4 million, you need $5.8 million in profits. Sample Phantom Stock Agreement By Staff Report Jul. Entire Agreement; Amendment 9. 1. stock option plans, 2. stock bonus plans, 3. stock purchase plans, and 4. phantom stock plans. Employee Stock Purchase Plan The Company's Employ Stock Purchase Plan (the " ESPP ") enables eligible employees to purchase the Company's common stock at a price per share equal to [ ]% of the lower of the fair market value of the common stock at the beginning or end of each offering period. This paper provides an overview of the principal income tax issues relating to these common stock incentives. No Rights as a Stockholder 10. Each offering period of the ESPP lasts [ ]. As with phantom stock, this is normally paid out in cash, but it could be paid in shares. . Like Phantom Stock Plans, if drafted properly, employees are taxed on SAR Plans when the right to the benefit is received. In private companies, employees must be able to vote . Phantom plan awards may either provide for full-value awards or appreciation-value awards. Employee Stock Ownership Plan ("ESOP"). Summary Withholding of Tax 6. For additional information, contact: Stephanie Chandler schandler@jw.com (210) 978-7704 Lauren Prew lprew@jw.com (210) 978-7737 DISCLAIMER:The attached document and any additional resources provided herewith (the "Documents") have been prepared by Jackson Walker L.L.P. by Daniel L. Hogans, Groom Law Group, Chartered, with Practical Law Employee Benefits & Executive Compensation. Anti-Dilution 7. Stock Option Award (Early Exercisable) This set of stock plan forms was developed over the past 3 years through Clerky's close collaboration with Y Combinator and Orrick, as part of an initiative to streamline startup legal documents. Phantom stock is used by companies as an approach to long-term incentive plans and as a mechanism for creating additional performance-based awards. The sponsoring company determines a phantom stock price through an internal or external valuation of the company. No: Parameters: Employee Stock Options: Sweat Equity Shares: Phantom Stocks: 1. Say you are in Minnesota, for instance, and want to redeem $4 million in stock. Each Unit is intended to represent a phantom share of the Company's stock ("Stock") as defined in the Lifetouch Inc. Vesting and Forfeiture of Phantom Shares 3. Each year after the company valuation, the share price of the Phantom units is marked to the current share price. Employees are granted options to purchase common stock, exercisable at some time in the future. " Phantom Unit Appreciation Rights ", which are the equivalent of phantom stock appreciation rights in a corporation. 11, 2003 Phantom stock is usually used when a company wants to give stock-like incentives to some employees-without providing actual stock, and usually without providing voting rights. Federal and state income tax comes to 31% for your company. For executives, phantom stock rights do not represent a true ownership position in privately held companies that do not have publicly traded shares. Pros of the Phantom Stock Plan. It includes practical guidance, drafting notes, and optional and alternate clauses. WMS Industries Inc., a Delaware corporation (the "Company"), hereby grants to Full_Name (the "Grantee", also referred to as "you") shares of its phantom stock (the "Phantom Stock"), pursuant to the terms of the attached Phantom Stock Agreement and the 2009 Restatement of the WMS Industries Inc. The Company hereby grants to the Participant 6,696 units (the "Units"). A phantom stock plan is a contractual agreement wherein a company promises to make cash payments to employees upon the achievement of certain conditions. This simple-to-use tool walks you through the key steps in designing a plan, allowing you to project the value of your own company, decide how much of the growth and appreciation you're willing to share with your key executives, and identify those executives and the amount of Phantom Stock designated for each. This template includes practical guidance, drafting notes, and alternate clauses. This ownership of Phantom equity in a 409A plan is economically tantamount to holding actual shares in a tax deferred account. price of the company stock. Nontransferability of Phantom Shares 5. Termination 4. A plan that grants units of phantom stock, which are valued based on the company's common stock. Phantom stock plan gains (in appreciation-only programs) or current fair value (in full-value programs) must be paid by the company versus the public markets which is the case when using publicly . With an ESOP, you just need $4 million. Use this form phantom unit award agreement to grant phantom stock units to an employee or other service provider under a phantom plan. Meaning: Section 2 (37) of the Companies Act, 2013: "Employee stock option means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or . 1. The majority of phantom stock plans fall into one of two main categories . Just as with stock awards, the purpose of a phantom stock plan is to generate an ownership mentality and reward key employees for helping to grow the business value. A form of phantom stock agreement to be used by a private, closely-held company when granting phantom stock awards to employees under a phantom stock plan. Payment Upon Death or Disability 5. A phantom stock plan, or 'shadow stock' is a form of compensation offered to upper management that confers the benefits of owning company stock without the actual ownership or transfer of any. This form phantom stock plan is primarily designed for use by a privately held company to incentivize employee and other service provider performance by granting awards whose value is determined based on the company's stock value. Like any genuine stock, phantom stock's value rises and falls in line with the underlying company stock. Section 2.2. Phantom Stock Agreement Contract Templates Phantom Stock Agreement - Table of Contents (based on 3 contracts) 1. A phantom stock plan is a bonus scheme that is referred to as a 409(a) plan by the Internal Revenue Service (IRS). Phantom Stock Agreement. Here's sample verbiage from one such agreement. Generally, under these structures, at the time of sale the plan triggers a payout to the executive that is taxed as compensation when paid. The . The answer involves two variables: (a) the presumed value of the company, and (b) the number of shares to be used in the plan. Phantom stock is a deferred compensation plan, which is an arrangement where an employee receives income after the income was earned. When the shares go into the ESOP trust, they are allocated to at least all full-time employees who work . The Company shall pay, and Executive shall be entitled to receive, the value of the Phantom Stock Interest, which shall be paid as follows: (a) in the event of a Sale, at the same time and in the same form of consideration (on the same proportionate basis) as is paid to the seller in the Sale; (b . Company stock is granted to employee, subject to forfeiture, unless vesting conditions are satisfied. A Phantom Stock Plan is customized to fit each advisor's fact pattern and goals. Examples of deferred compensation include phantom and real stock, along with retirement plans and pensions. SARs often can be exercised any time after . In consideration of the mutual covenants and representations set forth below, the Company and Participant agree as follows: Name of Participant: Grant Date: Number of Phantom Units: 1. Status of Stock 7. Stock Option Plan - Parsons Advanced Holdings Inc. 1999 Director Option Plan - Brocade Communications Systems Inc. Directors' Phantom Stock Option Plan - Reader's Digest Association Inc. Share Option and Share Grant Plan - Xinhua Finance Media Ltd. 1993 Stock Option Plan - Sovereign Bancorp Inc. 1996 Stock Option Plan - Sovereign Bancorp Inc. Stock Appreciation Rights (SARs) are a form of phantom stock. Board Membership 8. Private Company // Long Term Incentive Plan Design Template Guidance . Rather than receiving stock, the employees receive phantom stock that 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). It is an employee benefit that gives employees the opportunity to purchase company shares at a predetermined price, known as the "equity value.". Phantom Unit Rights confer past and future value of an LLC unit, measured from the time of the award. Phantom Equity Plan - Design Considerations In an effort to motivate and retain key employees, some privately-held employers create phantom equity plans where the employees are given many of the benefits of stock ownership without actually being given any stock in the company. It is potentially an "uncapped liability" to the company. When portfolio companies decide to adopt a stock plan, Y Combinator recommends they do so . Notices 11. These units represent "phantom" shares of the company that are assigned to the plan participant and rise and fall in value in tandem with the company share price. At that point, the value of the award minus any consideration paid for it (usually none) is taxed to the employee as ordinary income and is deductible to the company. Staffers are compensated with profits incurred from any company stock . Benefit 12. A phantom stock plan is a costly form of long-term incentive requiring a charge against the company's income statement. As with many other IRS-regulated plans, there are some dos and don'ts that are . 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. Type Of Interest Also known as simulated stock, shadow stock, or synthetic stock, these plans allow key employees to share in company growth without owning company shares. Once these two answers are known, the phantom share price is calculated as the former (the value) divided by the latter (the number of shares). Phantom stock is an employee benefit where selected employees receive benefits of stock ownership without the company giving them actual stock. Private and public companies utilize long term incentive plans as a retention tool, to align key employees with company performance over a three-to-five-year period and to be more competitive for attracting key talent. As for the value of phantom stock, it's based on the value of an employer's real stock. Rights Unfunded 9.
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