Phantom shares are contractual bonus or incentive rights that mirror the value of a company’s shares, without granting any actual share ownership or shareholder rights. They are typically used in executive or employee incentive schemes where the participant receives a cash payment (or sometimes cash-settled securities) calculated by reference to the increase in the company’s share value and, in some cases, dividends.In practice, phantom share plans are governed by contract law rather than company law, and the term is descriptive rather than defined in UK or Irish legislation or case law. Key legal issues include careful drafting of vesting conditions, leaver provisions, performance targets, change of control clauses, valuation mechanisms and tax treatment.Because phantom shares do not involve issuing new shares, they avoid dilution, shareholder approvals and many company law formalities in England & Wales, Scotland, Northern Ireland and Ireland. They can be used in private companies where establishing a market value for real shares is difficult, and in groups where minority protection or regulatory concerns make equity awards unattractive. Usage and legal characterisation are broadly consistent across the UK and Ireland, subject to differing payroll and income tax rules.