Phantom share plans refer to plans to offer employees the opportunity to share in the growth of the company, but without having voting rights. Rather, phantom shares can more accurately be referred to as a type of cash bonus. However, these employee perks are linked to the performance of the company, in the same way that shares are, so they have been dubbed "phantom shares."

Some companies cannot sell legitimate shares to their employees for one reason or another, and phantom share agreements are the next best thing to offer them the same level of incentive as a share plan. These plans can be arranged so that they are very attractive to prospective employees, and so that they provide tax advantages to both employer and employee too.

Valuing Phantom Share Plans

The big question is, how should phantom shares be valued on an ongoing basis to the satisfaction of all parties? It's not always easy to decide this, especially since phantom share plans, themselves, are usually pretty fluid agreements. They are usually an agreement on the part of the employer to pay the employee a lump sum at a set future date, but who knows how the company will fare in the meantime?

Many employers have been handling phantom share plans in such a way that they are regularly entered into with certain key employees, but not "declared" to the relevant financial advisors. This can result in a great deal of financial confusion. In some cases the agreement between employer and employee for phantom share plans is only verbal. Some agreements are set to mature at a much later date, say retirement or some other life event set for the future.