Phantom Stocks : Contemporary Variation of ESOP
For any Organization-be it a Start up or a long existing one, the buzzword these days is “Employee Retention”. High employee turnover keeps the CEOs/HR Heads on their toes and they keep wondering how to Award, Reward and Retain their human asset.
In such a scenario, Employee Stock Option Plan (ESOP) have emerged as a handy tool for employee retention. ESOP give the employee a right to buy a specific number of company's shares at a fixed price within a certain period of time. Employees\ who is granted stock options expect to gain by disposing off their shares at a higher price than at what they were granted.
ESOP inculcates a feeling of being the “Owner” and the Employees tend to perform better, thus leading to the Organisation’s betterment as well as the Employee enrichment. ESOP, thus, align the Promoters’ wish list with the employee interest. ESOPs can even be granted to the employees of the Company’s holding/ subsidiary companies as well.
ESOP inculcates a feeling of being the “Owner” and the Employees tend to perform better, thus leading to the Organisation’s betterment as well as the Employee enrichment. ESOP, thus, align the Promoters’ wish list with the employee interest. ESOPs can even be granted to the employees of the Company’s holding/ subsidiary companies as well.
ESOP can be of varied types and forms - Employee Stock Purchase Scheme (ESPS), Restricted Stocks Units (RSUs), Performance Shares, Stock Appreciation Rights (SAR) including Phantom Stocks etc.
While all others are comparatively traditional methods of ESOP, Phantom Stocks have surfaced as an interesting and contemporary variation of ESOP. Phantom Stocks are also referred to as “Shadow Stocks”. As the name depicts, these are the Stocks that are not for real, they are like a shadow. The employee is granted the Options, to be redeemed into cash, as per the Scheme, without creating any impact on the Company’s share capital or the voting percentages.
Phantom Stocks provide a cash or stock bonus based on the value of a stated number of shares, to be paid at the end of a specified period(s)...
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