Can I Get My Employees Thinking Like Owners Without Giving up Stock?

Employee incentive plans can be established to reward management employees based on increases in stock value without actually giving the 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 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 increases over the baseline.  The employee holds only a right to receive cash in the future if the stock value increases (not the stock itself), hence the name “phantom stock.”  Yet the employee is rewarded only 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 may be subject to ERISA, but generally are exempt.  If I can help you set up an employee incentive plan for your management employees, let me know.  Jsenney@pselaw.com or 937-223-1130.

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AND ONE MORE THING.    Governor John Kasich recently signed HB 153 which 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.   Want to know more about reducing or eliminating federal or state estate tax?  Give me a call or email and ask me how at Jsenney@pselaw.com or 937-223-1130.