Most countries can offer phantom stock equivalent programs. They may utilize different names and structures and certainly the details will vary. But the concept of performance-based long-term incentives is valid in nearly any business environment.
While the summary of topics summarized elsewhere on this website has been specific to U.S. law, which would apply to U.S. employers, this section is specific to the sorts of phantom stock-like arrangements that can be adopted by Canadian employers.
Under Canadian law, there are basically two types of arrangements designed to share value without giving actual company stock: “Restricted Stock Unit Plans” and “Deferred Stock Unit Plans.” Like their U.S. counterparts, and in spite of their names, these arrangements don’t actually involve the granting of actual company stock. Following is a summary of each:
Restricted Stock Unit Plans are a type of phantom stock arrangement under which employers can grant full-value or appreciation-only shares. The employer can determine the valuation method (e.g., a formula value) and is not tied to actual company value. Employers can also provide the benefits to a broad base of employees or to a very limited group1. They can also distribute benefits in cash or company stock. However, these plans have fairly limited payment date options. The benefits are required to be paid by the end of the third calendar year following the year of grant.
Deferred Stock Unit Plans are for a longer benefit term and permit payment upon a termination or retirement. The employer must establish a unit value that is based on the actual fair market value of the company, established pursuant to an arms-length test. This value can be determined as of any day in the year. There is no taxation of Deferred Stock Units at the time of the grant. Instead, taxes are payable at the time the benefit is distributed (at retirement or termination).
1 Care should be taken with regard to grants made to shareholders as such could be found to be a dividend.