Full Value Phantom Stock

Objective: Align key employees with organizational goals, increase input from employees on quality improvements

Company Profile: Midwest specialist retail chain; $400 million in revenue

Growth Goals: Steady expansion into five new states

Growth Barriers: Needed to strengthen ownership mentality (cost and performance accountability) within all levels of management and supervision

Compensation Issues: Relatively low salaries; desired to institute long-term value sharing instead of annual discretionary bonuses

Solution: Full Value Phantom Stock with Phantom Dividend. The Plan was designed to award annual grants of "full value" phantom shares to approximately 100 employees. Employees were to earn shares based on personal performance achievement. Company would declare an annual "phantom dividend" which would be allocated among participants in the form of a profit-sharing bonus. Shares were set up to be eligible for redemption after five years.

Company has achieved budgeted growth goals for four consecutive years. Employee-participant meetings are held monthly to discuss customer satisfaction, cost management and quality control issues. Company management illustrates the impact of cost savings and productivity gains on phantom share values. Employees receive annual statements outlining share growth and future redemption potential.

Owners report:

  • Stronger employee alignment with organizational goals
  • Increase in employee (bottom up) recommendations for quality improvements
  • Estimated plan cost running at less than 15% of increase in owner equity improvement (within budgeted standard)

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