Phantom Stock

Course: Investment Planning
Lesson 5: Fundamental Equity Analysis

Student Question:

What is the difference between Stock options and Restricted stock plan or phantom stock?  Seems confusing.

Instructor Response:

    • Stock options are contracts between employer and an employee that allow the employee to purchase a specific number of employer shares at a specific price after a vesting period.
    • Restricted stock is awarded to the employee and the employee owns the shares immediately.  The employee is restricted from reselling the shares until the restrictions lapse but otherwise has most of the rights of ownership.
    • Phantom stock is neither an option nor restricted stock. Phantom stock is merely a way to calculate the amount of nonqualified deferred compensation paid to an employee.

    Let me know if you have any other questions.