Research on the Deferred Compensation Plan in the Equity Incentive Phantom Stock Model

Research on the Deferred Compensation Plan (Deferred Compensation Plan) in the Equity Incentive Phantom Stock Model 1. Concept 1. The Deferred Compensation Plan—also referred to simply as “deferred payment”—refers to a practice whereby a company deposits part of its management team’s compensation—particularly annual bonuses and equity incentive income—into a dedicated deferred compensation account established by the company for each manager. This portion is converted into shares based on the company’s stock market price on the date of deposit. The shares (or their cash equivalent, calculated at the stock’s market price upon maturity) are then distributed to the incentivized individual after a predetermined period or upon the executive’s retirement. (Source: Baidu) 2. Literally translated as the “Time-Unit Plan,” it is also known as the “Performance-Based Option Plan” or, alternatively, the “Deferred-Payment Performance Shares.” 3. It is a long-term incentive model introduced to Huawei from the United States. 4. Characteristics: • First, deferred compensation payouts are closely tied to corporate performance. Management must pay close attention to the company’s stock-market valuation: only when the share price rises can incentivized individuals safeguard their own interests; furthermore, the underlying contractual agreement may stipulate that if an incentivized individual performs poorly or neglects duties—thereby harming the company—the deferred compensation may be reduced or revoked as a penalty. • Second, the deferred payment mechanism encourages management to make decisions aligned with the company’s long-term interests, thereby mitigating short-termism. 5. Advantages and Disadvantages: The deferred payment approach embodies compensated grant and gradual realization—i.e., an “incremental + deferred” distribution scheme—as well as a fundamental alignment between risk and entitlement, yielding relatively pronounced motivational effects. Advantages of this incentive model include: (1) Converting part of the operator’s compensation into shares—and locking them up for an extended period—increases the cost of departure, prompting operators to focus more on the company’s long-term development, reducing short-term behavior, strengthening long-term incentives, and helping retain and attract talent; (2) This model is highly operational and does not require approval from the China Securities Regulatory Commission (CSRC); (3) Since part of the manager’s bonus is awarded in shares, it offers tax advantages.

Founders’ Must-Read: The Optimal Equity Incentive Model—The Deferred Compensation Plan

The income received by incentivized individuals under a Deferred Compensation Plan consists of two components. For example, suppose a manager achieves the performance target for risk-based income and is awarded 100,000 shares, priced at RMB 10 per share, giving a notional value of RMB 1 million, payable after a five-year deferral period. Five years later, the manager’s actual gain comprises two parts: first, the market value of the 100,000 shares at maturity; second, the appreciation in the company’s stock price over those five years. Specifically, if the share price rises to RMB 15 after five years, the manager’s total gain becomes RMB 1 million + RMB 500,000 = RMB 1.5 million; conversely, if the share price falls, the gain shrinks accordingly—e.g., by RMB 500,000. Thus, the Deferred Compensation Plan exhibits the following characteristics: • Balanced incentive and constraint: It tightly aligns the incentivized individual’s interests with those of shareholders and the company. • Stronger constraint than the stock option model: Under the stock option model, if the stock price declines, the incentivized individual may simply forfeit the option—suffering only the opportunity cost—thus avoiding personal loss. By contrast, under the Deferred Compensation Plan, unless the stock price remains stable or rises, the incentivized individual inevitably incurs losses; only diligent effort to improve corporate performance—and thereby prevent share-price decline—can safeguard their personal interests. • Longer lock-up period: In China, the deferral period is typically set at five years; in the U.S., it may extend even to retirement. This effectively deters managerial short-termism. • Weaker incentive intensity compared to stock options: Since the awarded shares represent only a portion of the reward granted on a deferred basis, the number of shares awarded tends to be relatively modest, resulting in comparatively weaker motivational impact. • Broad application prospects: If viewed as a design principle, deferred compensation can be flexibly combined with virtually any other incentive model to create novel equity incentive structures. [Case Analysis] E Company’s Deferred Compensation Scheme E Company is a listed A-share company in China. Its board of directors designed the following remuneration plan for managers: base salary + year-end bonus + risk-based income. Base salary is determined annually by the board based on the prior year’s operating performance and disbursed monthly in cash. The year-end bonus is paid out in full in cash upon achievement of pre-set year-end bonus targets. Risk-based income refers to an additional performance threshold set above the year-end bonus target: once the manager meets this agreed-upon risk-based income target, the company grants an incentive award. Of this award, 30% is paid in cash, while 70% is awarded in shares under a deferred compensation arrangement. Whether E Company’s managers ultimately receive risk-based income depends on their degree of achievement relative to the pre-agreed risk-based income target: 70% of the target constitutes the performance floor—meaning no risk-based income is awarded if performance falls below 70% of the target, and previously accrued deferred share awards are forfeited; if performance reaches 70%–100% of the target, the manager receives a proportionate share of the risk-based income—for instance, if the target was RMB 1 million, achieving 75% of the target yields RMB 750,000 in risk-based income; and if performance exceeds the target, the manager receives 120% of the target—i.e., RMB 1.2 million.

Eastman Chemical (EMN) director defers cash retainer pay into 480 stock-linked units.

1 day ago

Eastman Chemical director Eric L. Butler deferred his annual retainer fees into 480 Phantom Stock Units on October 7, 2026. Following the transaction, his total reported balance stands at 3,798 units.

Stock Titan

2026-04-30

Core Natural Resources Adds Two Directors to Board

2026-10-09

Eastman Chemical (EMN) director defers cash retainer pay into 480 stock-linked units.

Eastman Chemical (EMN) director defers cash retainer pay into 480 stock-linked units.

FAQ