Phantom Stock Law and Legal Definition

Phantom stock is An incentive plan that is long term, in which the participant is given the compensation in cash that is determined by a formula. A full value plan pays the full value. The formula does not have to include the actual price of the stock. An phantom stock incremental value plan is similar to the phantom stock full value, however the payment is an appreciation or increase in value as determined by the formula. The formula does not have to include the actual price of the stock.

This compensation tool is designed to motivate and retain key employees without sharing ownership in the company. Such plans can yield some of the same payoffs as equity grants or stock options. Using phantom stock it's possible to pass onthe same financial reward to executives or others without incurring any of the risks or complications that might accompany the sharing of equity.