The Key Differences Between ESOP, Phantom Shares & RSU

Employee ownership is an effective way to align employee interests with the company’s goals. It has become increasingly common for companies to offer employees equity-based compensation through Employee Stock Ownership Plans (ESOPs), Restricted Stock Units (RSUs), and Phantom Shares. While these plans allow employees to earn a share in the company’s success, their structure, benefits, and tax treatment differ.

Employee Stock Ownership Plans (ESOPs)

ESOPs are a form of employee stock ownership that allows employees to own a share of the company they work for. ESOPs are funded by the company’s contribution of stock to a trust, which holds the shares for the benefit of the employees. The shares are then allocated to employees based on a formula set out in the plan. ESOPs offer several benefits to employees, including the opportunity to share in the company’s success and tax advantages. ESOP contributions are tax-deductible for the company, and employees are not taxed on the contributions until they receive a distribution from the plan.

Restricted Stock Units (RSUs)

RSUs are a form of equity compensation that allows employees to receive a share of the company’s stock at a future date. Unlike stock options, which allow employees to buy stock at a certain price, RSUs are given to employees as part of their compensation package. The shares are typically granted based on the employee’s performance or tenure with the company. RSUs have become increasingly popular in recent years, offering several advantages over traditional stock options. RSUs provide employees with a guaranteed payout, as they will receive the shares regardless of whether the stock price goes up or down. They also provide employees with an incentive to stay with the company, as they will only receive the shares if they remain employed for a certain period.

Phantom Shares

Phantom shares are a type of equity compensation that does not involve the actual issuance of shares. Instead, they are a promise by the company to pay employees a certain amount of money based on the performance of the company’s stock. The amount of the payout is typically tied to the price of the company’s stock, and employees receive the payout in cash or company stock at a future date. Phantom shares are often used by private companies that do not want to dilute their ownership structure by issuing actual shares. Phantom shares offer several advantages over other types of equity compensation, including flexibility and simplicity.

Key Differences

While all three types of equity compensation offer employees the opportunity to share in the company’s success, they differ in their structure, benefits, and tax treatment. ESOPs provide employees with the opportunity to become owners of the company they work for, while RSUs provide a guaranteed payout and an incentive to stay with the company. Phantom shares offer flexibility and simplicity but do not give employees an actual share of the company’s stock.

Another key difference is in the tax treatment of each type of equity compensation. ESOPs provide tax benefits to both the company and the employee, as contributions to the plan are deductible as a business expense. Employees are not taxed on the contributions until they receive a distribution from the plan. RSUs, on the other hand, are taxed as ordinary income when they vest, while phantom shares are taxed as ordinary income when they are paid out.

Finally, the vesting schedules for each type of equity compensation can vary. ESOPs typically have a vesting schedule of three to six years, while RSUs may have vesting schedules that are shorter or longer depending on the company’s needs. Phantom shares can have more flexible vesting schedules, as they are not tied to actual shares and can be paid out based on the company’s performance.


ESOPs, RSUs and phantom shares are all effective ways for companies to provide equity-based compensation to their employees. Each plan has its unique advantages and disadvantages, and companies should carefully consider their goals and the needs of their employees before selecting a plan. By understanding the key differences between these plans, companies can choose the best plan for their needs and provide the greatest benefit to their employees. Additionally, Singaporean companies should consult a tax professional to ensure compliance with local regulations regarding the tax implications of each plan.

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*The above represents our opinions and views and does not reflect the position of any entities mentioned.