Phantom Stock: benefiting a hard working employee
• Many small business owners wish to provide an incentive to a particularly hard working employee or several employees but prefer to keep actuall ownership of their business in the family. Formal employee stock option plans or 401(k) plans may be too expensive and involve complex rules. Phantom stock can supply a way of accomplishing this. The employer promises the employee a bonus based on some percentage of increase in the value of the company payable at a predetermined time. The calculation can be as simple as the value of a fixed number of shares or the equity value of the company multiplied by some other factor which can be easily verified. If properly drawn, such a plan does not trigger the complex rules required for formal employee stock option plans or 401(k) plans and does not involve a transfer of ownership. Such a plan can be combined with other incentive plans to provide even greater incentive, such as a note evidencing a loan by the employee to the company, which can be converted into shares. The shares may be either voting or non-voting. The right to convert may be triggered by a specific event, or the passage of time. Setting up such plans can be affordable and yet provide substantial incentive to an employee, or several employees, to take a substantial interest in the success of the company.
Best practices suggest that a close working relationship with qualified and experienced legal counsel will enable you to maximize your success and minimize the potential pitfalls which so often plague small business. Good employees are one of your most valuable assets. Keeping good employees is vital to the success of any business.
Call business lawyer C. Stephen Gurdin Jr. at his Wilkes-Barre office today at 570.826.0481, toll free at 800-221-0618, fax 570-822-7780, email Stephen@gurdinlaw.com to schedule a free consultation.
Regular Office hours 2:30 and 7 p.m. Monday through Friday by appointment. Earlier appointments available upon request.