What’s the Book on Phantom Stock Plans?

For years, I’ve been searching for a simple and readable explanation of phantom stock plans. I want that simple guide to give to CEOs because I believe phantom stock arrangements when executed creatively can be one of the best bonus plans for mid-level and senior leadership team members. While that book does not exist, I did find someone who has helped to craft more than a hundred such phantom stock plans, our topic in this episode.

Who is Paolo Pasicolan?

• Principal at Miles and Stockbridge (full-service law firm in mid-Atlantic region)
• Expert in executive compensation, employee benefits, tax, and ERISA litigation
• Guest on the ExitReadiness podcast talking about phantom stock plans

Show Highlights

• Why the lack of good content about phantom stock plan examples?
• Are phantom stock plans generally overlooked by CEOs and founders?
• How easy are they to set up?
• A complicated (not complex) cash bonus
• Formal or informal?
• What is the starting point for creating?
• Short term? Long term? In between?
• When to pay out?
• Funding phantom stock plans?
• When do tax benefits occur? This was not the answer the host was looking for.
• The dangers of certain uses of percentages.
• Phantom stock vs. actual securities.
• The best plans have been the boring ones.

A Fascinating Concept about Phantom Stock Plans

Many business owners I work with have short-term bonus plans that are paid out annually. Others share freely when they sell a business–I’ve been amazed at the generosity I’ve witnessed, and these were cases where formal documents did not exist. The payouts were a gift of gratitude.

What about the periods in between? How about a bonus structure that covers a five- to seven-year period. That’s where a phantom stock plan can be especially effective.

But how do you get started? How do you structure it? What does the math look like?

Paolo recommends starting with what you are trying to incent. Once you’ve figured that out, you need to determine how to fund the payout? If you are still looking for guidance, then read on.

A Strongly-Held Opinion

I walked away from this interview realizing I now have a shortlist of attorneys when looking for legal input when creating a phantom stock plan. That list has only one attorney on it. It’s Paolo Pasicolen. You can find his email address and phone number on his firm’s website. He’s clear, concise, and easy to listen to. This is the person I want to work on such an overlooked incentive plan.

Looking for Another Show?

If you liked this episode and are wanting to hear more, here are five of our most downloaded shows:

Looking for some great book suggestions? Skim the past three to five Bookmarks that are published monthly. In those posts, you’ll find upwards of twenty-five books mentioned.