Restricted Stock
A corporation's issue of shares to its employees at little or no cost to them in exchange for their services to the company with access restricted pending the fulfillment or realization of certain conditions that the employer would specify.

Examples include an employee achieving a certain number of years of service (akin to vesting in a qualified plan but without the strictures of ERISA) or the company meeting specified earnings targets. Should the conditions set by the employer fail to materialize, then any rights to the shares would be forfeited. The corporation would hold the share certificates issued in the participants' names, releasing them to the employees once the employer-mandated contingencies (time- or performance-based) are met. At this point, the employees would own the shares outright. Holders of restricted stock are entitled to the receipt of dividends as well as the right to vote the shares. Shares become taxable to the employee to the extent that fair market value exceeds basis once they are no longer forfeitable.

Phantom Stock
This type of arrangement is a right to a bonus of faux shares of a company's common stock over a period of time based upon the performance of that company's actual shares. The bonus or gain is a function of the difference between the value of the stock at a later date minus its value at the time that it is granted to an employee.

As with both restricted stock and stock appreciation rights, time- or performance-based vesting often govern the employee's eventual receipt of these phantom units. Advantages and disadvantages are mixed, with participants not having to choose an exercise date, holders not having the right to receive the equivalent of a share dividend, yet having the right to vote. Once the stock is no longer at substantial risk of forfeiture, its value at exercise is includible in ordinary income.
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