Provide the exact amount of cash income over $200 during the reporting period. 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 issuing company generally remedies the matter through: For example, an issuing phantom stock price of $50 when the companys current share price is $40. Companies should consider the possibility of such unexpected fluctuations in value, regardless of whether it relies on a third-party valuation. It creates a sense of ownership in the success of the business. Cash accumulated to pay for the benefit may be subject to an excess accumulated earnings tax (a tax on putting too much money in reserve and not using it for business). How It Works, Taxation, and Types of Plans, Stock Compensation: Definition, How It's Used, and Typical Vesting, Publication 5528 (6-2021): Nonqualified Deferred Compensation Audit Technique Guide. Equity Alternatives: Restricted Stock, Performance Awards, Phantom Stock, SARs, and More. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. Phantom stock plans are deferred compensation plans and, as such, must be designed and documented to conform to the requirements of section 409A. The value may be a specified value, determined by an express written formula or determined by a third-party appraisal. Depending on the terms and conditions, restricted stock units may . 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. Phantom stock plans have financial implications for employees and companies that cut both ways: Pros. For income tax purposes, if the plan is compliant with section 409A, the deferred compensation attributable to the phantom stock will not be subject to income taxation to the employee until it is actually paid to and received by, the employee. than $200 in income during the reporting period. The company's leadership has considered other plans but found their rules too restrictive or implementation costs too high. Phantom stock is a compensation plan that bestows upon the holder the right to receive a cash payment at a specified future point in time usually in conjunction with a specified future event or milestone. A phantom stock plan and stock option plan both award employees from the share appreciation of the companys stock price. 1.1.3 Basis of presentation. hb```,, A+dTr]BBTse Thus, regardless of any vesting schedule, there is no locked-in value inherent in the phantom stock. Each plan sponsor should make a determination after consulting with its accounting advisors. Additional legal documents and agreements, such as a shareholders agreement, may have to be amended or drafted, increasing complexity and legal fees. This content is copyright protected. If so, at what rate? Company name must be at least two characters long. Less expensive than offering employees an employee stock ownership plan (ESOP). endobj PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Stock option plans produce a more favorable fixed accounting result. None of these plans should be set up without the detailed advice of qualified legal and financial counsel. The amount of the cash payment is linked to the market value of a predetermined number of shares of the company's stock. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. List of Excel Shortcuts Determining which accounting policies are considered significant is a matter of management judgment. Just as with stock awards, the purpose of a phantom stock plan is to generate an ownership mentality and reward key employees for helping to grow the business value. Follow along as we demonstrate how to use the site. when the vesting is triggered by a performance event, such as a profit target. If you have any questions pertaining to any of the cookies, please contact us us_viewpoint.support@pwc.com. 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. If payments should be made in installments, over how many years? Should the phantom stock units pending payment continue to participate in the growth in value of the company? Sufficient versatility for private and public companies to use. Phantom stock payments are usually made at a fixed, predetermined date. 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. About the Financial statement presentation guide& Full guide PDF. <>>> ERISA (the Employee Retirement Income and Security Act of 1974) is the federal law that governs retirement plans. For example, capping the cash payment to a company share price limit of $50. Welcome to Viewpoint, the new platform that replaces Inform. 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. It provides increased incentives as the value of the company increases. Please see www.pwc.com/structure for further details. 1.1 Financial statement presentation and disclosure requirements. 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). 594 0 obj <> endobj Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. However, unlike actual stock, the award does not confer equity ownership in the company. PwC. stream 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 member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. 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. Phantom stock, also known as synthetic equity, has no inherent requirements or restrictions regarding its use, allowing the organization to use it however it chooses. The specifics regarding vesting and payment are covered in Section 5. of this phantom plan and Section 1 of the form As a result, a phantom stock plan allows the participant to reap the benefits of an increasing share price without shareholder dilution. Management might consider materiality of the related account, as well as the requirements of users, such as investors, analysts, financial institutions, and other constituents. It provides a level of reassurance to employees since phantom stock programs are generally backed in cash. If funds are set aside, they may need to be segregated into a "rabbi trust" or "secular trust" to help avoid causing employees to pay tax on the benefit when it is promised rather than paid. All rights reserved. This guide details the required presentation and disclosures for each topical area. In each year, the value is adjusted to reflect the additional pro-rata share of the award the employee has earned, plus or minus any adjustments to value arising from the rise of fall in share price. Or it could promise to pay her an amount equal to the value of a fixed number of shares set at the time the promise is made. Does the phantom stock plan comply with section 409A? Our book Equity Alternatives: Restricted Stock, Performance Awards, Phantom Stock, SARs, and More includes a detailed chapter on phantom stock and SARs. The company is not a company - it is a nonprofit or government entity that nonetheless can create some kind of measurement that mimics equity growth that it would like to use as a basis to create an employee bonus. We use cookies to personalize content and to provide you with an improved user experience. 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. This is in comparison to a stock option plan, where the plan participant receives common stock. Description: Provide the name of the employer, write phantom stock, and indicate whether the phantom stock is vested. The phantom stock plan should indicate the number of phantom stock units or the participation percentage interest to be granted to the employee. Ready to Speak with a Phantom Stock Expert Now?Call (888) 703-0080 or complete our contact form. Report any stock that you acquired as a separate lineentry, using the standard instructions for, 3 - Your Employment Agreements & Arrangements. She has worked in multiple cities covering breaking news, politics, education, and more. Please seewww.pwc.com/structurefor further details. Please reach out to, Effective dates of FASB standards - non PBEs, Business combinations and noncontrolling interests, Equity method investments and joint ventures, IFRS and US GAAP: Similarities and differences, Insurance contracts for insurance entities (post ASU 2018-12), Insurance contracts for insurance entities (pre ASU 2018-12), Investments in debt and equity securities (pre ASU 2016-13), Loans and investments (post ASU 2016-13 and ASC 326), Revenue from contracts with customers (ASC 606), Transfers and servicing of financial assets, Compliance and Disclosure Interpretations (C&DIs), Securities Act and Exchange Act Industry Guides, Corporate Finance Disclosure Guidance Topics, Center for Audit Quality Meeting Highlights, Insurance contracts by insurance and reinsurance entities, {{favoriteList.country}} {{favoriteList.content}}, Financial position at the end of the period, Earnings (net income) for the period, (which may be presented as a separate statement or within a continuous statement of comprehensive income [see paragraph, Comprehensive income (total nonowner changes in equity) for the period in one statement or two separate but consecutive statements (if the reporting entity is required to report comprehensive income, see paragraph. A cash payment from Company A equal to the current common share price: $50 x 500 = $25,000. Her expertise is in personal finance and investing, and real estate. - 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 . Publicly traded companies will want to be certain their phantom stock structure qualifies as performance-based compensation. Other reporting entities choose to include this information in a "Significant Accounting Policies" footnote, as described in. As the phantom stock units become vested, the value of the phantom stock units is includible as wages subject to FICA taxes. You can learn more about the standards we follow in producing accurate, unbiased content in our. Other equity or allocation formulas could be used as well. 4 0 obj Stock compensation refers to the practice of rewarding employees with stock options that will vest, or become available for purchase, at a later date. In-depth guide on presentation and disclosure requirements under US GAAP, plus considerations under SEC regulations. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. For both phantom stock and SARs, employees are taxed when the right to the benefit is exercised. Value: Report the value of the phantom stock by selecting the appropriate category. (If based only on the appreciation, this is commonly referred to as a stock appreciation right.) When will phantom stock units vest? Are you still working? Refer to the following PwC guide sections for guidance on those matters: Company name must be at least two characters long. <>/ExtGState<>/XObject<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Disclosure of accounting policies shall identify and describe the accounting principles followed by the entity and the methods of applying those principles that materially affect the determination of financial position, cash flows, or results of operations. An employee stock ownership plan (ESOP) enables employees to gain an ownership interest in their employer in the form of shares of company stock. 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. Report phantom stock if the value of the phantom stock was more than $1,000 at the end of the reportingperiod or ifyou received more than $200 in income during the reporting period. Employee Stock Ownership Plan (ESOP): What It Is, How It Works, Advantages, What Are Stock Options? But that flexibility is also their greatest challenge.