Question

Describe phantom stock & SARS are and how they are used to encourage key employees to stay

Answer 1

Phantom stock is one of the employee benefit plans where the employees actually do not own the stocks of the company but are provided with the benefits of ownership of the company stocks. So the employees do not get the physical stock. They get the cash value of either the increase in the stock price ( appreciation) or the value of the stock along with appreciation (full value) after a certain period of time.

It is a contractual agreement and the employees derive the benefits on achieving certain conditions which contribute to the growth of the business.

Stock Appreciation Rights (SARS) is another type of employee benefit scheme, where the employees are benefitted when there is an increase or appreciation of the stock price of the company. The employees receive the increase in the stock price in the form of bonus over a period of time.

Phantom stocks and SARS are usually given to the employees holding a key position in the company (such as a senior manager). Such plans or incentives would motivate the employees to achieve more growth in the business. It would also help them develop a personal interest in the growth of the business as they would be enjoying the benefits of owning the company stocks without having to pay for it. Therefore, these employee benefit plans facilitate the companies to retain their key employees.