Certificates awarded to employees in lieu of stocks. While not actual shares of a company, phantom stocks act as bonuses based on the increases in value of the company's shares. Often in small operations, and closely held companies. Also known as shadow stocks.
Phantom stock is essentially a cash bonus plans, although some plans pay out the benefits in the form of shares. Phantom stock provides a cash or stock bonus based on the value of a stated number of shares, to be paid out at the end of a specified period of time. Phantom stock can, but usually does not, pay dividends; SWhen the payout is made, it is taxed as ordinary income to the employee and is deductible to the employer.