How Do I Get Employees Acting Like Owners Without Giving Them Stock?

 

     Employee incentive plans can be established to reward management employees based on increases in stock value without actually giving employees stock.  These plans are generally set-up as non-qualified deferred compensation arrangements and are often called stock appreciation right (“SAR”) plans or phantom stock plans.    
     Under the typical SAR or phantom stock plan, one or more key employee is awarded an SAR.  Under the SAR, a stock value baseline is established (normally fair market value on the date the award is issued), and the employee is given the right to receive cash (not stock) at some time in the future if the stock value has increased over the baseline.  The employee holds only a right to receive cash in the future if the stock value has increased.  The employee does not own the stock itself.  Hence the name “phantom stock.”  But the employee is rewarded if there is improvement in the value of the employer’s stock.  So the employee has every incentive to work hard, and go above and beyond the call of duty, to make the employer more profitable and successful. 
     Where employees are in a position to affect only part of the employer’s operations, some employer’s like to determine and measure the employee’s incentive compensation based on those specific factors the employee directly affects.  For example, a VP of Sales might receive an incentive award based only on increases in sales.  Or a controller or treasurer might receive an incentive award based on decreases in expenses or improvement in profit margins. 
     SAR and other employee incentive plans covering only key employees may be subject to ERISA, but generally are exempt.  If I can help you set up an employee incentive plan for your key management employees, let me know.  Jsenney@pselaw.com or 937-223-1130.
     AND ONE MORE THING.    HB 153 was signed into law and contains language eliminating the Ohio Estate Tax for decedents dying on or after January 1, 2013.  Under the new law, the Ohio Estate Tax will still apply to decedents dying before January 1, 2013.   While we can’t control date of death, we can advise you on certain strategies to reduce or eliminate federal and state estate tax.  Give us a call or email at Jsenney@pselaw.com or 937-223-1130.
AUTHOR: Jeff Senney
jsenney@pselaw.com