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Owners of companies are always looking for creative ways to compensate and retain essential employees, while simultaneously retaining complete control and ownership.

Phantom stock, sometimes referred to as “shadow stock”, is a fairly popular mechanism to tie compensation for employees to the financial performance of a company.  It is a company’s promise to pay an employee an amount equal to the value or increase in value of a certain number of shares of the company’s stock without actually giving the employee any company stock.

By allowing employees to participate in the …