PHANTOM SHARES A phantom share option scheme is a non-equity-based employee incentive plan. Put plainly, it is a cash bonus scheme, but rather than being arbitrary or random, it tracks a company’s share value. In practice, employees receive options for notional or hypothetical shares – known as phantom units – with a view towards securing cash payments at a later time based on positive movement in the value of the company’s shares above and beyond a base price set at the start of the process. The base price will usually be the market value of the shares at the point that the options are granted. While share value is typically the key consideration with a phantom scheme, companies, where feasible, can choose to use a different metric to assess business performance over time, such as earnings per share or overall profit. Whatever the method, the principle remains the same – company progress over time is tracked and that will be directly linked to whatever pay-out participants ultimately receive.
No new shares are issued, therefore there is no dilution. Participants only ever receive cash pay-outs.
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