Despite the ghostly name, phantom stock is not quite as mysterious as it sounds. In essence, phantom stock is a deferred compensation plan that gives an employee a stake in a company’s success without conferring an actual ownership interest in the company.

Phantom stock provides an employee a benefit measured by, and tied to, the value of an employer’s common stock. Easy, right? What makes it a “phantom” is that, unlike actual stock that conveys a piece of equity ownership in a company, phantom stock does not bestow any actual equity ownership in the company. An employee is granted units of phantom stock shares and the phantom stock plan would provide that each phantom stock unit has an equal value to each share of the company’s common stock.

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