The Benefits of Phantom Stock
Are You Ready for a Phantom Stock Plan?
Sharing equity is not always the most efficient way to create incentives for your talented top performers. In these cases, phantom stock may be the way to go.
Phantom stock is a long-term incentive plan where the employer commits to paying select employees a future benefit tied to an increase in the enterprise’s value—without diluting ownership or voting rights.
Answer the 10 questions below to see whether your company is a good candidate for a phantom stock plan.
Please note, none of the information that you input here is stored or sent to our company. These tools are for demonstration purposes only.
Your company is probably not a good candidate for a phantom stock plan at the present time. Given the following observations, there are some considerations below before you move forward.
Things that may stand in the way of a successful plan
Our Assessment Tool did not identify a strong reason for your company to not adopt a plan.
Your current organizational structure may not be suited to a plan. Other structures, such as a corporation or LLC, are more conducive to phantom stock because they provide business continuity.
If you expect to sell your company in the next few years a phantom stock plan may not be appropriate. However, other plan types may apply. Contact us to discuss your alternatives.
A phantom stock plan is best suited to sponsors expecting significant growth over a period of 5 years or longer.
A phantom stock plan typically awards value to employees when the company expects meaningful improvements in profits over time.
Highly leveraged organizations may have challenges meeting the cash flow obligations that a plan will typically include.
Before adopting a plan, you should be able to identify more employees that are essential to the future success of your business.
Large debt obligations can stress a phantom stock plan. You would want to be sure you'll have the liquidity capability to meet plan obligations.
Phantom stock plans would be more suitable for a company that needs to attract and retain premier talent.
You should consider implementing a quality short-term incentive plan before moving on to a long-term plan.
A phantom stock plan will add to your value proposition but will not replace the need to shore up your short-term plan.
Consider building a compensation philosophy statement that addresses the potential role of both short- and long-term value sharing for your organization.
You should consider whether your profit growth opportunity is large enough to create value that can be shared with your employees.
Things that should encourage you to adopt a plan
Our Assessment Tool did not identify a strong reason for your company to adopt a plan.
Phantom stock typically works well in your business structure.
Your growth goal can be suitable for a plan assuming the total future value you are able to share is meaningful to employees.
Your growth expectations suggest a meaningful opportunity to build alignment by sharing value through a phantom stock plan.
You've indicated an expectation for above average margin improvement. This is an important element in a successful plan.
Dramatic margin improvements should allow you to present a plan that will significantly enhance your partnership relationship with your key employees.
The fact that you carry little or no long-term debt supports the ability to meet the cash flow obligations of a phantom stock plan.
You seem to have a number of employees for whom a phantom stock plan might be a good fit. You'll likely find that a well-designed plan will help build team unity and focus.
A phantom stock plan may increase your ability to attract higher level talent.
As you continue your efforts to attract and retain premier talent, a phantom stock plan will likely become an essential part of your overall compensation strategy.
A quality phantom stock plan will begin to set your compensation structure apart. You may want to boost your short-term bonus plan to a new level at the same time.
A phantom stock plan will give you the right balance between short and long-term value sharing. Working together, the two plans will engender a unified financial vision for growing the business.
Since you're not completely confident about the impact of value sharing with employees, be sure to identify the results you're expecting from a plan before proceeding.
A strong phantom stock plan will validate your belief in value sharing with employees. It should become a key driver of long-term growth.
Utilize VisionLink’s additional assessment tools:
Which Incentive Plan Is Right for Your Company?
Use our decision tree to discover the right long-term incentive plan for your organization.
Can Your Company Support a Phantom Stock Plan?
This tool helps you envision your company’s future, so you can evaluate the merits of sharing value with your employees via a phantom stock plan.
Ready to Get Started?
When it comes to building a compensation strategy, you can trust that VisionLink knows what works and what doesn’t. We are ready to share that knowledge with you.