Report the value of the phantom stock by selecting the appropriate category. To receive more complimentary information about Phantom Stock from our expert advisors, please provide us with your contact information below. However, the company and the employee would each be subject to Medicare payroll tax since the Medicare tax is imposed on total wages, without any wage cap. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. Large cash payments to employees, however, must be taxed as ordinary income rather than capital gains to the recipient and may disrupt the firm's cash flow in some cases. To ensure these tax results occur, companies should ensure that the terms of the phantom stock plan are in compliance with section 409A prior to the plan becoming effective. Additional legal documents and agreements, such as a shareholders agreement, may have to be amended or drafted, increasing complexity and legal fees. Statutory options include Incentive Stock Options (ISO's) and options granted under an Employee Stock Purchase Plan (ESPP). Despite their name, phantom stock plans are NQDC arrangements, not stock arrangements. The purpose of the Chaparral Energy Phantom Stock Plan (the "Plan") is to provide deferred compensation to certain key employees (the "Participants") of Chaparral Energy. To learn why sharing value with those who drive growth is so critical to your pay strategy, download and read our report today! - Financial statements dated within 180 days Must be prepared in accordance with GAAP - Foreign private issuers must provide reconciliation to GAAP Provide audited financial statements (including footnotes) if available If disclosure is not provided to all investors in the offering prior to sale - the exemption is lost for the entire . "Publication 5528 (6-2021): Nonqualified Deferred Compensation Audit Technique Guide. (If based only on the appreciation, this is commonly referred to as a stock appreciation right.) PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. For the Federal Insurance Contributions Act (FICA), deferred compensation is includible as wages in the later of either the year in which the related services are performed, or the year in which the deferred compensation becomes vested. Please see www.pwc.com/structure for further details. Here are answers to nine frequently asked questions about phantom stock plans and what they could mean for your company. By simulating stock ownership, without actually providing it, management ensures that equity does not become diluted for other shareholders. A phantom stock plan, also called a shadow stock plan, is a type of deferred employee compensation plan where the type of shares issued to plan participants are phantom shares instead of company shares. SARs are a form of bonus compensation given to employees that is equal to the appreciation of company stock over an established time period. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Report phantom stock if the value of the phantom stock was more than $1,000 at the end of the reporting period or if you received more than $200 in income during the reporting period. Because they can be designed in so many ways, many decisions need to be made about such issues as who gets how much, vesting rules, liquidity concerns, restrictions on selling shares (when awards are settled in shares), eligibility, rights to interim distributions of earnings, and rights to participate in corporate governance (if any). Other companies may have one or more of these plans but want to supplement them for certain employees with another kind of plan. Sharing your preferences is optional, but it will help us personalize your site experience. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. If the issuing phantom stock price is $30, and the companys share price at redemption is $100, the cash payment per phantom stock would be capped at $50 $30 = $20. If you have any questions pertaining to any of the cookies, please contact us us_viewpoint.support@pwc.com. Companies can choose what the triggers areexamples include a separation from service, a change in control, or a specified future date or fixed payment schedule. A phantom stock plan is an employee benefit plan that gives selected employees (senior management) many of the benefits of stock ownership without actually giving them any company stock. Her expertise is in personal finance and investing, and real estate. To receive more complimentary information about Phantom Stock from our expert advisors, please provide us with your contact information below. Under ASC 718, companies recognize the fair value of those awards in their financial statements, generally beginning on the date the awards are granted. The companys stock option and stock appreciation right (SAR) plans will need to carefully define performance based pay in order to qualify phantom stock payments for the full tax deduction. When will phantom stock units vest? The purpose of the Chaparral Energy Phantom Unit Plan (the "Plan") is to provide deferred compensation to certain key employees (the "Participants") of Chaparral Energy. For example, assume John was issued 500 phantom shares of Company A in January that are worth $50 per share and are redeemable in March. Stock compensation refers to the practice of rewarding employees with stock options that will vest, or become available for purchase, at a later date. An employee stock option (ESO) is a grant to an employee giving the right to buy a certain number of shares in the company's stock for a set price. Phantom stock plans have financial implications for employees and companies that cut both ways: Pros. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. Description: Provide the name of the employer, write phantom stock, and indicate whether the phantom stock is vested. The plan must be properly vetted by an attorney, with all of the pertinent details specified in writing. Pros and Cons of Phantom Stock Plans. Other equity or allocation formulas could be used as well. The value may be a specified value, determined by an express written formula or determined by a third-party appraisal. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. The phantom stock plan should specify what events should trigger, or give rise to, a valuation (i.e., what events should entitle the employee to receive benefits under the plan) and at what precise point the value of the phantom stock units should be determined. Employees pay no taxes until they receive income from the plan. Should the payment be made in a lump sum or in installments over a period of years? So from the time the grant is made until the award is paid out, the company records the value of the percentage of the promised shares or increase in the value of the shares, pro-rated over the term of the award. A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed-upon price and date. Equity grants may give rise to voting rights or unforeseen minority rights under state law. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. A foreign parent may wish to award phantom stock units to executive employees of a U.S. subsidiary to avoid the complications of selling stock on a foreign exchange. Similarly, if there is an explicit or implied reduction in compensation to get the phantom stock, there could be securities issues involved, most likely anti-fraud disclosure requirements. Stock appreciation rights (SARs) are a type of employee compensation linked to the company's stock price during a predetermined period. As such, the sponsoring company must recognize the plan expense ratably over the vesting period. Phantom stock plans are considered "liability awards" for accounting purposes (assuming they will be settled in cash rather than stock). Visit rsmus.com/about for more information regarding RSM US LLP and RSM International. For more information, see Section 409A Fundamentals. For many companies, the route to employee ownership is through a formal employee ownership plan such as an ESOP, 401(k) plan, stock option, or employee stock purchase plan (ESPPsa regulated stock purchase plan with specific tax benefits). Report your phantomstock and income from phantom stock in Part 2. There are two main types ofphantom stock plans. In addition, special forfeiture provisions can be included in the phantom stock plan to eliminate the companys obligation to make payments to an executive upon specified events (e.g., if the employee breaches non-compete restrictions in the plan or the employees employment is terminated for cause). In a full value phantom stock plan, the plan participant receives a cash payment equal to the value of the underlying asset (common stock) of the phantom stock at redemption. The first issue is figuring out how much phantom stock to give out. This guide details the required presentation and disclosures for each topical area. Follow along as we demonstrate how to use the site. Any subsequent gain on the shares is taxable as capital gain. Save time on drafting legal paperwork with US Legal Forms. How should a change in control be defined? The specifics regarding vesting and payment are covered in Section 5. of this phantom plan and Section 1 of the form The presentation and disclosure requirements discussed in this guide presume that the related accounting topics are considered to be material and applicable to the reporting entity. For example, legislative increases or decreases in corporate tax rates may result in companies having more or less cash flow, accordingly (with all else being equal). Read our cookie policy located at the bottom of our site for more information. List of Excel Shortcuts Each offering period of the ESPP lasts [ ]. All rights reserved. A pension plan is an employee benefit that commits the employer to make regular payments to the employee in retirement. Please see www.pwc.com/structure for further details. Although partnerships do not have common stock, as noted above, entities taxed as partnerships, including LLCs, can implement plans very similar to phantom stock plans. Ready to Speak with a Phantom Stock Expert Now?Call (888) 703-0080 or complete our contact form. A phantom stock plan could be a potential, uncapped liability for the issuing company due to the fact that the payment is tied to the share price at redemption. The two types of phantom stock plans are "appreciation only," which doesn't include the value of the underlying shares, just the increase in stock over the amount of time the shares are held; and "full value," which pays the underlying value and the amount the stock increased while it was held. Phantom stock can also be changed at the leadership's discretion. hbbd```b``v+A$X{lG#d_b+gHFV #CiDO `
Additionally. In this case, the company must estimate the expected amount earned based on progress towards the target. The concept is better understood below, where we contrast phantom shares (from a phantom stock plan) with stock options (from a stock option plan). Yes, there is. If they do, they could be subject to ERISA rules (see below). Phantom stock plans are deferred compensation plans and, as such, must be designed and documented to conform to the requirements of section 409A. In a phantom stock plan, upon redemption of phantom stock, the plan participant receives cash compensation. In-depth guide on presentation and disclosure requirements under US GAAP, plus considerations under SEC regulations. Phantom stock plans can be a valuable method forcompanies that seek to tie incentive compensation to increases or decreases in company value without awarding actual shares of company stock. Phantom stock ties a financial gain directly to a company performance metric. This chapter introduces the general concepts of financial statement presentation and disclosure that underlie the detailed guidance that is covered in the remaining chapters of this guide. S-X 4-01 (a) (1) requires financial statements filed with the SEC to be presented in accordance with US GAAP, unless the SEC has indicated otherwise (e.g., foreign private issuers are permitted to use IFRS as issued by the IASB). ;?|U`7D"gm8DHXR~J5h!Sv(Pm%1hmd4]@xa]/|BPBq~C8[ ^[
2ts=Q`K.'ozH6oR>UThrIOL
S=um0RXlkN4|f^4H_P4zTQGpTbP4o3)%XyF. Phantom stock plans that require the attainment of predetermined metrics (i.e., performance vesting) are expensed as the performance conditions become ascertainable, instead of over the requisite service period. Understandably, a lower issue phantom share value provides greater upside for the plan participant upon redemption: *Assume that the common stock price at redemption is $35. Please seewww.pwc.com/structurefor further details. Consider removing one of your current favorites in order to to add a new one. It provides a level of reassurance to employees since phantom stock programs are generally backed in cash. Stock-based compensation. All rights reserved. In the case of a partnership, however, the value of a phantom stock unit is tied to partnership equity value rather than common stock value. 616 0 obj
<>stream
Employee Stock Purchase Plan The Company's Employ Stock Purchase Plan (the " ESPP ") enables eligible employees to purchase the Company's common stock at a price per share equal to [ ]% of the lower of the fair market value of the common stock at the beginning or end of each offering period. Instead, the employee is granted a number of phantom stock units, and the plan provides that each phantom stock unit is equal in value to one share of common stock. EBPAQC Alert No. 2019 - 2023 PwC.
Contact Us Todaydocument.write(checkCookie()), 2019 - PhantomStockOnline.comPowered by VisionLinkAll Rights Reserved. By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. %%EOF
A full set of financial statements for a period shall show all of the following: In any one year it is ordinarily desirable that the statement of financial position, the income statement, and the statement of changes in equity be presented for one or more preceding years, as well as for the current year. A phantom stock plan, or 'shadow stock' is a form of compensation offered to upper management that confers the benefits of owning company stock without the actual ownership or transfer of any shares. The calendar year-end audited financial statements of the Company will serve as the basis for the adjusted balance sheet for the valuation period ending December . What's the purpose? How will the phantom stock units be valued (i.e., based on a formula or an appraisal)? The company will customarily consider the phantom stock plan a benefit that requires disclosure in an S-8 filing with the SEC. Consider removing one of your current favorites in order to to add a new one. A phantom stock plan is a deferred compensation plan that awards the employee a unit measured by the value of a share of a companys common stock, or, in the case of a limited liability company, by the value of an LLC unit. A phantom stock plan, or 'shadow stock' is a form of compensation offered to upper management that confers the benefits of owning company stock without the actual ownership or transfer of any. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Should forfeiture provisions apply if the employee enters into competition with the company or is terminated for cause? Accounting topics or transactions that are not material or not applicable to a reporting entity generally do not require separate presentation or disclosure, unless otherwise indicated. Employee Stock Ownership Plan (ESOP): What It Is, How It Works, Advantages, What Are Stock Options? The value of the Phantom Units will be based on the Fair Market Value ("FMV") of Chaparral, L.L.C. The company's leadership has considered other plans but found their rules too restrictive or implementation costs too high. Each offering period of the ESPP lasts [ ]. This content is copyright protected. Other adjustments that might be considered include subtractions for capital investments made by the shareholders during the course of the plan, additions for any dividends paid to shareholders during this period, and the amount of accrued deferred compensation attributable to the phantom stock units themselves. As of the end of each of the two most recent fiscal years, Statement of changes in stockholders' equity, Present in a separate statement or in the footnotes for each period a statement of comprehensive income is presented. The phantom stock plan must specify when the phantom stock unit payments should commence and at what point a valuation of the units is generally required, as described above. For example, capping the cash payment to a company share price limit of $50. Other reporting entities choose to include this information in a "Significant Accounting Policies" footnote, as described in. Description : Provide the name of the employer, write "phantom stock," and indicate whether the phantom stock is vested. Get reusable documents specific to your state in the most extensive online forms library, with 24/7 access to your acquired samples. Stock option plans produce a more favorable fixed accounting result. This guide does not address the income tax, earnings per share, or cash flow implications of stock-based compensation awards nor other presentation and disclosure matters. An employee stock ownership plan (ESOP) enables employees to gain an ownership interest in their employer in the form of shares of company stock. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Such plans must conform to IRS Section 409A and be vetted by an attorney with plan details specified in writing. Thus, regardless of any vesting schedule, there is no locked-in value inherent in the phantom stock.