You then make yearly calculations of the phantom stock's performance. The size of financial rewards is performance-based and predetermined. You can also predetermine just when the rewards are to be delivered. If, for instance, you think your children are five years away from being able to take the reins, you may want to structure the plan so that rewards are paid out no earlier than five years from now. That will keep your manager on board and working hard to grow the company until then.
Many arrangements are possible, however.
Payouts can be tied to retirement, termination, or death or disability. Plans often provide a schedule whereby the manager's rights to payouts are vested over time. Win-win Phantom stock plans give business owners the bridge they need to cross over into retirement without worrying whether their company is well managed as their children learn the business. They keep ownership in family hands. They create a common interest between owners and top managers in seeing the business grow and profit.