By Founder & CEO Scott Savage.
Today more than ever, business owners are looking for compelling ways to attract and retain talent in a highly competitive labor market. One approach to achieve this goal used by some business owners is through implementing a phantom stock plan. This type of plan affords business owners a way to reward key employees for past service and to align their interest with that of the company going forward.[1]
What Is A Phantom Stock Plan?
A phantom stock plan qualifies as a type of deferred compensation plan, contractually tying monetary compensation directly to the value of the business if certain conditions are met.
The idea of phantom stock is that it simulates ownership, providing the means for an employer to offer employees the potential benefit of company growth while avoiding the complications of transferring actual ownership. In practice, when the phantom shares are earned by the employee, a valuation date is set. Then, a formula is used to imitate the actual stock value, and the payout is based on the value of those shares.[2]
Note: Working with tax and legal professionals to set up this type of plan is important for proper execution.
Why Choose A Phantom Stock Plan?
A phantom stock plan can potentially succeed because it provides mutual benefits and protections for both the employer and employee.
For the employer, along with avoiding ownership dilution, it affords flexibility in selecting who is eligible for participation. Compared with employer-sponsored (ERISA) plans, which require benefits to be available to each employee, a phantom stock plan allows for the employer to offer participation to key employees and adjust values on an individual basis.[1] Additionally, this type of plan can help lead to less employee turnover, through both vesting period requirements and, in some cases, non-compete agreements.[3]
For the employee, participating in this plan is a bonus for their dedication to the company, and can endure into the future. Specifically, it can provide a predictable stream of cash flow after leaving the company or into retirement. In addition, if the company is sold, the plan typically vests immediately, offering protection in case ownership changes.
Final Thoughts
As you, a business owner, consider options to motivate your employees, a phantom stock plan is a valuable tool to build a mutually beneficial agreement with key employees within your organization. We believe this type of plan is a great way to potentially help propel the growth of your business, while giving you the ability to reward the people who help make it possible.
Important Disclosure Information & Sources:
[1] “Phantom Stock Plan“. Adam Hayes, 22-May-2022, investopedia.com.
[2] “An Introduction To Phantom Stock And Stock Appreciation Rights“. Gary Pattengale, 22-Feb-2022, bdfllc.com.
[3] “Phantom Stock Plan“. Corporate Finance Institute, 10-Mar-2021, corporatefinanceinstitute.com.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
SJS Investment Services has been recognized in CNBC’s 2024 FA 100 list, an annual ranking of registered investment advisory (RIA) firms within the USA.
SJS Investment Services has been recognized in the Forbes / SHOOK 2024 list of America’s Top RIA (Registered Investor Advisor) Firms.
Every four years, we get the same question (whether you have asked it, or you are thinking it) – how will the election affect my portfolio?
As we approach the end of the year, we want to highlight some important financial items to review before the new year.
This Outlook includes our discussion of election time, financial to-dos before the end of the year, new SJS Perrysburg office, SJS Team updates, and looking forward to Q4 2024.
SJS Investment Services has been recognized in Financial Advisor Magazine’s 2024 Registered Investment Advisor (RIA) Ranking, an annual ranking of independent investment advisory firms within the United States.
As I approach my 40th anniversary as a financial advisor, I can't help but look back on the road I've traveled.
While people commonly hold their cash within checking and savings accounts, we want to highlight three short-term, interest-bearing investments that can be held within your investment account.
This Outlook includes Founder & CEO Scott J. Savage’s gratitude for your 40 years of trust, how you can earn more interest on your cash, welcoming new SJS Team members, and looking forward to Q3 2024.
For five graduating high school Seniors who shadowed us recently, we asked each student to write a summary of what they learned during the week.
One of The Ability Center’s services is the Assistance Dog training program, which helps individuals with disabilities achieve greater independence.
When working with investment managers, we want them to share that same client-first philosophy and sit on the same side of the table with us.
We want to emphasize some best practices that can help us work together to ensure your information and assets remain safe.
The Outlook includes our evolving MarketPlus® Investing philosophy by standing on the shoulders of giants, and ways to help protect your personal information and financial assets. We also highlight The Ability Center and look forward to Q2 2024.
SRDAX is a shining example of the value alternatives can bring to traditional stock and bond strategies.
As we begin the new year, we have some ideas for concrete actions to start your new year on the right foot, financially.
Isn’t this picture magical? It's Main Street in Sylvania, Ohio, the small town where I founded SJS over 28 years ago!
The SJS Q4 2023 Outlook includes our insights on small town values, MarketPlus® Investing, and planning financially for the new year. We also highlight new SJS Team members and look forward to Q1 2024.
To help you financially plan for 2024, we provide this resource with important numbers for the upcoming year.
SJS Investment Services has been recognized in the Forbes / SHOOK 2023 list of America’s Top RIA (Registered Investor Advisor) Firms.
In addition to family gifting, many individuals support giving to organizations that aim to help their communities. We highlight some strategies to make the most of your giving dollars.
You can consider putting excess cash into a money market fund, short-term U.S. Treasury bonds, or a short-term bond mutual fund / ETF.
The future of the housing market is uncertain, and its resilience will be a crucial factor in the broader economic landscape.
The SJS Q3 2023 Outlook includes our insights on gifting and charitable contributions as well as U.S. real estate. We also look forward to Q4 2023.
SJS Investment Services has been recognized in CNBC’s 2023 FA 100 list, an annual ranking of registered investment advisory (RIA) firms within the United States.
International Samaritan is a 501(c)(3) nonprofit organization that is working to break the chains of poverty and improving lives, particularly within garbage dump communities worldwide.
SJS has been recognized in Financial Advisor Magazine’s 2023 Registered Investment Advisor (RIA) Ranking, an annual ranking of independent investment advisory firms within the United States.
The SJS Mission is to empower you to build a better life. That extends to our teammates, clients, and community members.
The SJS Q2 2023 Outlook includes our insights on building up our local communities as well as market performance so far in 2023. We also share even more members of the SJS family and look forward to Q3 2023.
It’s important to recognize how difficult it is to predict what will happen in the short-term for investment markets, and how much margin for error there should be for any prediction.