It requires an official document that describes the terms and articles of the plan. The document is used to confirm the operation of the plan, clarify questions and meet certain minimum compliance requirements. A company gives a consultant phantom share units with a four-year lock-up period. The value corresponds to 1000 shares. In question, the value of the shares is $1. In four years, once executed, the value is now $5. The shadow share plan should specify which events should trigger or trigger an assessment (i.e., which events should allow the employee to receive benefits under the plan) and when exactly the value of the phantom share units should be determined. Typically, the assessment follows an event that triggers the payment of the amount related to phantom units. Companies can choose what these triggers might be – for example, termination of service, a change of control, or a specific date a number of years from the date of award.
In most cases, an assessment is required when the employee is dismissed. In other cases, an assessment may be required at a specific time or after a certain number of years. This would give the phantom shareholder a profit of $20,000. As a general rule, implementing a shadow action plan costs less than a formal action plan. In a full-value phantom share transaction, the recipient receives both the current value and any increase in the share price once the maturity date is reached. .