Lee, N.J., and none of your lower-paid employees gets hurt. These plans, also known as supplemental executive retirement plans, or SERPs, allow employers to set aside additional funds for their top workers without regard to federal caps. Those measures should keep most of your smaller rivals at bay. But you can offer a chance to share in your company's future growth and profits. For one thing, owners are understandably reluctant to part with equity.
Stock options are also very complex and can get entangled in securities law.
There's no real stock involved, but the value of the company is computed as if it were public, using a preset formula. The employee is entitled to compensation based on the implied value of the phantom shares. Often the value becomes part of a long-term retirement account, says Edelstein. The obvious flaw from the employee's point of view is that the value of the stock can fall even if his or her performance was terrific. The employee receives the units upon reaching a fixed performance target, and they continue to rise in value based on subsequent performance.