7.1.14: Phantom Plans

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Abstract

There are any number of variations on the foregoing themes, including the issuance of junior common stock (no longer favored), so-called "haircut" programs,[1] "book value" stock plans,[2] ESOPs, stock bonus plans and the like, several of which raise tax, accounting, and ERISA issues.[3] Perhaps the most frequently used are phantom equity programs attempt to replicate the advantages of equity incentives without using real equity. Phantom plans can be divided into three general categories: plans in which the value of the payout is tied directly to the price of the issuing company's equity. SARs are an example of this type of plan; plans in which the value of the payout is tied to the price of the company's equity, but the public market for the equity is illiquid or nonexistent; and plans in which the value of the payout is tied to a measure that is...