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Phantom Stock Plan


A Phantom Stock Plan is a type of employee benefit plan that offers certain employees hypothetical or “phantom” shares of company stock as a form of incentive or bonus. The employee does not actually own any real shares or have any voting rights in the company. Instead, they receive an economic benefit equivalent to owning the stock, often in the form of cash payment at certain triggers, based on the valuation of the company’s stock at that time.


The phonetic spelling of “Phantom Stock Plan” is: – Phantom: /ˈfan(t)əm/- Stock: /stɒk/- Plan: /plæn/

Key Takeaways


  1. Employee Benefits: Phantom Stock Plans allow employees to enjoy the benefits of stock ownership without actually owning the stock. They get the financial rewards that come with a rise in stock prices.
  2. No Transfer of Ownership: Unlike actual stock plans, phantom stock plans don’t involve a transfer of ownership. This means that the company retains full control and decision-making rights.
  3. Tax Implications: The taxation for phantom stock plans are usually deferred until the plan benefits are distributed, at which point they are typically taxed as ordinary income.



A Phantom Stock Plan is crucial in a business/finance context as it serves as a strategic tool for businesses to incentivize and retain key employees without giving up actual equity ownership or company control. This employee benefit plan, which gives employees the benefits of stock ownership without the company having to issue actual stocks, provides cash bonuses tied to the market value of a certain number of shares. By mirroring the growth and value of actual stocks, it directly aligns the interests of benefiting employees with those of the shareholders. Consequently, this can motivate employees to contribute more towards company growth and profitability, hence reinforcing the overall company’s performance and value.


A Phantom Stock Plan is a financial instrument utilized by businesses to motivate and reward employees without necessarily giving up equity shares of the company. The purpose is to provide a form of future compensation dependent on the company’s success, aligning the interests of the employees with that of the company. It also carries the potential to foster employee loyalty and longevity, as it is often structured to reward long-term company performance.Within the confines of a Phantom Stock Plan, employees receive theoretical shares, often referred to as phantom shares or shadow stock. These shares mirror the price movement and dividends of the company’s actual shares, but they don’t represent actual ownership of the company’s stock. Instead, the phantom stock is redeemed for cash when a specific event occurs, such as the sale of the company, retirement of the employee, or other predefined event. The key advantage of this plan from the company’s perspective is that it can share the financial success of the company with its employees without diluting the ownership of the existing shareholders.


1. Apple Inc.: One of the most renowned global technology companies, Apple Inc., implemented a Phantom Stock Plan in 2014 to incentivize its employees. Apple’s phantom stock units (PSUs) were particularly structured to vest over several years and lesser or no payout occurred if certain performance thresholds weren’t met. 2. Alphabet Inc.: Google’s parent company, Alphabet Inc., also employs a stock plan, part of which is comprised of Phantom Stocks. Each Phantom Stock Unit granted carries the right to receive a Google Class C capital share. The aim is to attract and retain valuable employees in contribution to the company’s long-term stability and success.3. Starbucks Corporation: Starbucks established its phantom stock program called the “Bean Stock”. Employees (partners as they’re called) receive units that turn into stock after a certain period of time. This unique employee compensation program aligns with company growth and has been a successful incentive keeping employee morale and job satisfaction high.

Frequently Asked Questions(FAQ)

What is a Phantom Stock Plan?

A Phantom Stock Plan is a type of employee benefit plan in which anemployer provides a simulated or phantom share of company stock to workers. It mirrors the value and potential appreciation of the company’s actual stock, without giving employees actual ownership.

Who typically uses Phantom Stock Plans?

Phantom Stock Plans are typically utilized by privately held corporations who want to incentivize employees by offering them a stake in the potential growth of the company without giving away equity.

How does a Phantom Stock Plan work?

In a Phantom Stock Plan, the employer allocates a certain number of phantom stocks to an employee. The value of these stocks rise and fall with the actual company stock. When the phantom stocks vest, the employer pays the employee the resulting value.

When does the payout from a Phantom Stock Plan occur?

The payout generally occurs at a predetermined future point, such as a specific date, upon achievement of certain company goals, or at the time of the employee’s retirement or separation from the company.

What are the benefits of a Phantom Stock Plan for employees?

Employees benefit from the potential increase in the company’s stock value. Since they receive a payout equivalent to the value of the shares at the time of vesting, they can gain significant financial rewards if the company performs well.

Do employees owning Phantom Stocks have shareholder rights?

No, employees do not have shareholder rights as they are not actual owners of the company’s shares. They don’t get voting rights or dividends like regular shareholders do.

What are the implications of a Phantom Stock Plan for employers?

For employers, Phantom Stock Plans can be a powerful tool for retaining key employees and aligning their interests with those of the company. However, these plans also imply future cash liabilities for the company, which need to be properly managed.

What are the tax implications of a Phantom Stock Plan?

In general, for employees, the payout from a Phantom Stock Plan is typically considered ordinary income, and is therefore subject to income tax. For employers, the payouts are usually deductible as a business expense. However, specific tax implications can vary therefore it’s advisable to seek advice from a tax professional.

Related Finance Terms

  • Equity Compensation: This refers to the non-cash pay that represents ownership in the business. It is a form of compensation given by a company to its employees, which includes options to purchase company stock. Phantom stock plans fall under this category.
  • Vesting Period: In relation to a Phantom Stock Plan, a vesting period is the period of time before the shares in the phantom stock plan are unconditionally owned by the employee. The employee must continue to work for the company for a certain period of time to receive all the shares.
  • Payout: This is the amount an employee will receive at the end of the vesting period or due to specific triggers like retirement, death, disability or change of ownership. The payout in a Phantom Stock Plan can be in cash, real shares or combination of both.
  • Employee Retention: Phantom Stock Plans can be used as a tool to motivate and retain key employees. These plans can tie employees closer to a company by offering them a chance to benefit from the company’s success without granting them actual equity.
  • Shareholder Rights: In a Phantom Stock Plan, employees do not receive any shareholder rights such as voting rights, as they do not actually own any physical stocks in the company. However, they receive financial benefits, just as if they did own the shares.

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