The Phantom Share Option Plan is here

Phantom stocks are the set number of shares in a phantom share option plan - not a topic to make a song or dance about, or a broadway musical.  Phantom share option plans are used by companies which cannot, or do not want to, offer employees options to acquire actual shares. 

          This type of plan is used to reward directors and executives for successful long-term performance.  The plan confers a right to receive a cash payment, where such payment is based on the increase in value of certain shares over a specified period. In many ways, a typical phantom share plan will reflect a real share option plan in terms and mechanism, yet without the right of participants to acquire shares.  If the director or executor does not meet the performance levels, their reward disappears in a puff of smoke.

          The accepted tax treatment of phantom share awards is equivalent to that of a share option.  In both plans, tax requirements are hidden at the grant of the award, but the action of payment of the cash reward unmasks the tax obligation. HMRC’s view is that participation in a standard phantom share plan does not mean that the employee has been granted an option, either under existing legislation or the proposed amendments.  However, HMRC's view is subject to the usual caveat of the need to consider variants on their own facts (on a case by case basis). 

          The 2006 the Budget expressly did not change the accepted tax treatment of normal phantom share awards.  Therefore phantoms will stay with us, lurking in executive offices and mysteriously disclosing themselves in annual accounts and remuneration reports.

         

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