Defined contribution / long term incentive plans reward key employees for their individual contribution to the corporation’s profitability– similar to a profit sharing plan. Defined contribution plans also provide the greatest pay for performance planning flexibility.
Defined contribution plans offer many benefits to the employer, such as
- Pre-tax cost is equal to the reward contributions
- Vesting on reward contributions reduces costs on short-term participation and compliments company compensation and retention strategies
- Plan costs are offset directly through increased corporate profitability
In addition to employer benefits, defined contribution plans also benefit the employees by providing them employer generated personal wealth accumulation.
Phantom Stock Plan
- Alternative for corporations where there is sufficient time available for appreciation in the underlying business
- Employer grants hypothetical units of the business to an executive
- Units may rise or fall in value based on a specified formula or the value of the employer’s business
- Executive realizes income based on appreciation in the hypothetical units at the end of the specified period