What Is a Phantom Share Agreement

For example, limiting cash payment to a company`s share price limit of $50. If the issue price of the ghost share is $30 and the share price of the company at the time of redemption is $100, the cash payment per ghost share would be limited to $50 to $30 = $20. The Company hereby grants to the Shareholders of the Employee Phantom Shares a separate agreement and not, in lieu of salary or other compensation, an allowance that covers ______ Shares of Phantom Shares which are subject to the terms, conditions and restrictions set forth in this Agreement. Companies choose different ways to reward employees, especially those who hold important positions and/or who have been in the company for a long time. If you`re not sure if a ghost action plan is right for you, whether you`re the employer or the employee, you can seek advice from financial professionals. After fulfilling the conditions of the plan, employees are entitled to a payment in exchange for their units. The amount of the payment depends on (1) the number of acquired shares they hold, (2) the value of the shares at the time of payment and (3) whether the plan was for the full value of their shares or exclusively for the increase in value from the date of grant. Suppose an employee received 10 phantom shares with a starting value of $7 and assume that the shares are valued at $15 on the payment date. At the time of payment, the employee would receive $150 under a “full value” plan and $80 under an “appreciation only” plan.

One. The phantom action plan must specify the number of phantom share units or the percentage of participation to be granted to the employee. The company may initially grant an employee a certain number of units or a percentage of interest, which will be increased in several instalments over a period of several years. For example, a company could initially give the employee a 5% stake and increase the interest to 10% after five years of service. Whether granted in advance or over a period of several years, phantom share units may be acquired immediately or subject to an exercise plan chosen by the Company. In addition, special expiry provisions may be included in the shadow action plan to eliminate the company`s obligation to make payments to an officer in certain cases (e.B. if the employee violates the non-compete obligations of the plan or is dismissed for cause). PaymentThe Company will pay each Employee the amount by which the value of the Virtual Shares on the last day of the Performance Period exceeds the value of the Phantom Shares on the first day of the Performance Period (the Spread) in respect of the Virtual Shares allocated to the Participant and not previously expired. The payment is made over three years, with the first payment already made after the end of the benefit period, as the amount of the payment can practically be determined. Therefore, at the end of the fifth year, participants receive 33% of their scholarship, the remaining 67% is received at the end of the sixth and seventh year.

R. Shadow share plans are deferred compensation plans and, as such, plans must be designed and documented to meet the requirements of section 409A. For income tax purposes, if the plan complies with section 409A, the deferred compensation attributable to the phantom share is subject to employee income tax until it is actually paid and received from management. At the time the payment becomes taxable, the company may deduct an appropriate amount (subject to general restrictions on the amount that is reasonable and not excessive). However, unlike actual shares, where the increase in value in the event of a sale is eligible for favourable capital gains taxation, the value of the phantom share paid to the employee is taxable as ordinary income. Businesses should ensure that they comply with section 409A before a plan comes into force to ensure that these tax results materialize. A violation of the rules could result in the imposition and imposition of income-related penalties prior to the employee`s actual receipt. As a general rule, implementing a shadow action plan costs less than a formal action plan. The issue price of virtual shares in a phantom share plan is determined by the Company and is not necessarily linked to the value of the Company`s shares at that time. In this context, the company generally follows a valuation policy for the issue price of virtual shares.

Each phantom action unit is equivalent to one ordinary action. For established companies, ghost shares can be used as a cash bonus plan, although some plans pay the benefits in the form of shares. Some organizations may use phantom actions as an incentive for senior management. Phantom Stock directly links a financial gain to a measure of company performance. It can also be used selectively as a reward or bonus for employees who meet certain criteria. Phantom stock can be provided to any employee, either as a general benefit or based on their performance, seniority or other factors. Instead of receiving physical actions, the employee receives false actions. Even if it`s not real, the phantom share follows the movement of the company`s actual share price and pays the resulting profits. A phantom share plan, also known as a phantom share plan, is a type of employee deferred compensation plan in which the type of shares issued to plan members are phantom shares rather than company shares. Ghost shares offer similar benefits to owning shares, but without actually issuing shares of the company. Typically, only selected employees are selected to receive phantom actions, such as . B senior management.

Phantom share plans are deferred compensation arrangements that employees make based on the value of the company`s shares. Attribution, since they are not actual shares, does not confer on employees any ownership rights over the company. .