Phantom Share Option Agreement

In other words, the value of the phantom shares will increase with the value of the company`s shares, and the employee will be invested in such a way that the company continues to grow and become profitable, as it would if it had “real” shares. Employers benefit because employees who are granted phantom share rights are motivated to increase the value of the business without shareholders giving up on the business. Instead, the employee obtains a cash payment entitlement on defined terms, as opposed (for example.B.) to an ME that offers an option to obtain shares. The ability to offer large pay packages is essential to attract the best and brightest, especially for centralized management positions. One way to do this is to establish a phantom stock option plan, also known as an incentive compensation plan. The company should also set out a policy on granting options. The directive should address the question of whether, as a general rule, options should be granted only to executives who, through their own efforts, can increase the value of the business and whether the exercise of options should be subject to performance objectives. For startups, Phantom shares can be used in place of stock options to offer potential contributors to the startup`s success a simple form of participation, since phantom equity grants can be linked to negotiated implementation plans, with payment tied to a change of control or liquidity events such as an IPO or acquisition. Both the startup and the beneficiaries benefit from the flexibility of the agreement and the minimum legal and tax documentation. Since Share Phantom plans are in most cases an accounting, companies create a phantom share account on which fictitious shares are created, and if an employee adheres to the plan and an agreement is reached to regulate the stock option plan, Phantom shares are awarded in his favor.

“Ghost dividends”, which are not dividends at all, but a bonus that the company pays to the employee, are taxable as normal income to employees and deductible for the company, an additional benefit for the company beyond the advantage of maintaining the management of the company`s shares with ease and retaining ownership of a family business within the family. , and avoid disputes with ex-employees and bad-leavers. Therefore, Phantom shares should be used to protect the company`s investment in its core employees by sharing the company`s success. As a result, phantom stock option systems can provide a strong incentive for executives to play their part in directly influencing the value of the business. The company and the worker hold a contract in which the worker can benefit from the economic benefit of holding shares without actually holding shares. When certain trigger events in the stock option contract are respected, the employer is required to give the employee a cash bonus related to the increase in the value of the company`s shares. No actual action is transferred as part of a phantom action scheme; As a result, the worker does not become a minority shareholder or the right to vote. A phantom action option plan is a cash bonus plan in which the bonus amount is determined based on the increase in the value of the shares subject to the option. If the phantom share option is exercised, no shares are actually issued or transferred to the option holder. The worker must not pay tax in the event of the granting of the phantom action option.

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