Moneyzine
Contents
/Investment Guides /Stock Appreciation Rights and Phantom Stock Plans

Stock Appreciation Rights and Phantom Stock Plans

Moneyzine Editor
Author: 
Moneyzine Editor
2 mins
September 21st, 2023
Advertiser Disclosure

Definition

The term employee stock appreciation rights plans refers to compensation programs that provide a select group of employees with the ability to share in the increase in value of the company's stock without owning shares. In addition to enjoying the increase in the stock's value, phantom stock plans allow the employee to receive dividends too.

Stock appreciation rights and phantom stock plans are oftentimes offered in conjunction with non-qualified stock options.

Explanation

Unlike stock purchase plans, which are considered non-compensatory and provide employees with the ability to purchase shares of the company's common stock at a discount, stock appreciation rights and phantom stock plans are typically provided to a select group of employees the company desires to retain or reward.

Unlike stock options, which provide employees with the immediate transfer of company ownership by awarding the employee with shares of common stock they can purchase at a discount or receive free of charge, these plans entitle the employees to "virtual" shares of stock. That is to say, they enjoy the benefits of ownership without the actual transfer of stock. The difference between stock appreciation rights plans, also known as SAR, and phantom stock plans is small but worth noting:

  • Stock Appreciation Rights Plans: provides the employee with the right to receive cash that is equal to the increase in the value of the company's stock from the date the right was granted and the right was exercised, which is known as the bargain element.

  • Phantom Stock Plans: in addition to the cash payment rights provided employees under a SAR plan, these programs allow the employee to receive stock dividends when issued by the company. For this reason, phantom stock plans mirror actual ownership more closely.

While the issuing company enjoys a tax deduction when the cash is paid, both of the above plans are considered taxable compensation to the employee. Both of the above mentioned plans are often used in conjunction with non-qualified stock options (NQSO) plans since the after-tax cash received by the employee can be used to lower the tax burden associated with the NQSO.

Related Terms

common stock, stock warrants, employee stock purchase plans, stock compensation plans, stock option plans, Section 83(b) election, common stock equivalent, contingent issuance agreement, stock rights

Explore Investing Further

Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Looking for a way to avoid swap fees while trading forex?
Below listed are the small reviews of the top 10 ETF brokers available across the United States.
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
The table below lists the best stock picks under $2, listed on public exchanges.
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
This section will highlight the best EV-trading penny stocks available in the United States.
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.

Related Content

Biden Or Trump: Who Is Better For The Economy And Stocks?
Yup. This is one of those articles. It's an election year, and here in the U.S., we get to decide which old dude who’s been alive long enough to remember when there were only 48 states in the U.S. will be the leader of the free world.
March 19th, 2024
When it comes to strategic business planning, accounting is front and center, shaping the course of action. At least it should be.
March 14th, 2024
DRIP Brokers: Best Brokers for Dividend Investing for March 2024
Reinvesting dividends could mean compound growth for your portfolio. But reinvesting them manually can be a hassle. This is why you could benefit from a dividend reinvestment plan (DRIP).
March 12th, 2024
How To Invest in Real Estate Without Becoming a Landlord
We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
March 6th, 2024
Investing In Nature: The Closest You'll Get To Your Money Growing On Trees
ESG (Environmental, Social, and Governance) has become a polluted word for many traders and investors - but that doesn't mean it's going completely away. Nor does that mean you can't profit from nature or sustainable practices. But there are some opportunities in the regenerative ag, conservation, and green real estate spaces.
February 29th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.