Urinary tract infection - Wikipedia, the free encyclopedia - Sent Using Google Toolbar

Urinary tract infection - Wikipedia, the free encyclopedia

Urinary tract infection

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Urinary tract infection
Classification and external resources
Multiple rod-shaped bacteria shown between white cells at urinary microscopy from a patient with urinary tract infection.
ICD-10 N39.0
ICD-9 599.0
DiseasesDB 13657
MedlinePlus 000521
eMedicine emerg/625  emerg/626
MeSH D014552

A urinary tract infection (UTI) is a bacterial infection that affects any part of the urinary tract. Although urine contains a variety of fluids, salts, and waste products, it usually does not have bacteria in it.[1] When bacteria get into the bladder or kidney and multiply in the urine, they cause a UTI. The most common type of UTI is a bladder infection which is also often called cystitis. Another kind of UTI is a kidney infection, known as pyelonephritis, and is much more serious. Although they cause discomfort, urinary tract infections can usually be quickly and easily treated with a short course of antibiotics.[2] Studies have shown that breastfeeding can reduce the risk of UTIs in infants.[3]



[edit] Symptoms

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[edit] For bladder infections

[edit] For kidney infections

  • All of the above symptoms.
  • Emesis: Vomiting is common.[4]
  • Back, side (flank) or groin pain.
  • Abdominal pain or pressure.
  • Shaking chills and high spiking fever.
  • Night sweats.
  • Extreme fatigue.

[edit] Epidemiology

This section needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (June 2008)

UTIs are most common in sexually active women and increase in diabetics and people with sickle-cell disease or anatomical malformations of the urinary tract.

Since bacteria can enter the urinary tract through the urethra (an ascending infection), poor toilet habits can predispose to infection, but other factors (pregnancy in women, prostate enlargement in men) are also important and in many cases the initiating event is unclear.

While ascending infections are generally the rule for lower urinary tract infections and cystitis, the same may not necessarily be true for upper urinary tract infections like pyelonephritis which may be hematogenous in origin.

Allergies can be a hidden factor in urinary tract infections. For example, allergies to foods can irritate the bladder wall and increase susceptibility to urinary tract infections. Keep track of your diet and have allergy testing done to help eliminate foods that may be a problem. Urinary tract infections after sexual intercourse can be also be due to an allergy to latex condoms, spermicides, or oral contraceptives. In this case review alternative methods of birth control with your doctor.

Indwelling urinary catheters in women and men who are elderly, over placement of a temporary prostatic stent can be a major cause of UTIs. Also, people experiencing nervous system disorders, people who are convalescing or unconscious for long periods of time, will have an increased risk of urinary tract infection for a number of reasons. Scrupulous aseptic techniques may decrease these associated risks.

The bladder wall is coated with various mannosylated proteins, such as Tamm-Horsfall proteins (THP), which interfere with the binding of bacteria to the uroepithelium. As binding is an important factor in establishing pathogenicity for these organisms, its disruption results in reduced capacity for invasion of the tissues.[clarification needed] Moreover, the unbound bacteria are more easily removed when voiding. The use of urinary catheters (or other physical trauma) may physically disturb this protective lining, thereby allowing bacteria to invade the exposed epithelium.

Elderly individuals, both men and women, are more likely to harbor bacteria in their genitourinary system at any time. These bacteria may be associated with symptoms and thus require treatment with an antibiotic. The presence of bacteria in the urinary tract of older adults, without symptoms or associated consequences, is also a well recognized phenomenon which may not require antibiotics. This is usually referred to as asymptomatic bacteriuria. The overuse of antibiotics in the context of bacteriuria among the elderly is a concerning and controversial issue.

Women are more prone to UTIs than males because in females, the urethra is much shorter and closer to the anus than in males,[5] and they lack the bacteriostatic properties of prostatic secretions. Among the elderly, UTI frequency is in roughly equal proportions in women and men.

A common cause of UTI is an increase in sexual activity, such as vigorous sexual intercourse with a new partner. The term "honeymoon cystitis" has been applied to this phenomenon.[6]

Women who do not secrete The ABH blood group antigens are also 3-4x more likely to develop recurrent UTI's

[edit] Diagnosis

Multiple bacilli (rod-shaped bacteria, here shown as black and bean-shaped) shown between white cells at urinary microscopy. This is called bacteriuria and pyuria, respectively. These changes are indicative of a urinary tract infection, so this sample should be sent for bacterial culture and antibiogram.

A patient with dysuria (painful voiding) and urinary frequency generally has a spot mid-stream urine sample sent for urinalysis, specifically the presence of nitrites, leukocytes or leukocyte esterase. If there is a high bacterial load without the presence of leukocytes, it is most likely due to contamination. The diagnosis of UTI is confirmed by a urine culture.

If the urine culture is negative:

In severe infection, characterized by fever, rigors or flank pain, urea and creatinine measurements may be performed to assess whether renal function has been affected.

Most cases of lower urinary tract infections in females are benign and do not need exhaustive laboratory work-ups. However, UTI in young infants must receive some imaging study, typically a retrograde urethrogram, to ascertain the presence/absence of congenital urinary tract anomalies. Males too must be investigated further. Specific methods of investigation include x-ray, Nuclear Medicine, MRI and CAT scan technology.

[edit] Treatment

[edit] Uncomplicated UTIs

Most uncomplicated UTIs can be treated with oral antibiotics such as trimethoprim, cephalosporins, nitrofurantoin, or a fluoroquinolone (e.g., ciprofloxacin or levofloxacin). Trimethoprim is one widely used antibiotic for UTIs and is usually taken for 7 days. It is often recommended that trimethoprim be taken at night to ensure maximal urinary concentrations and increase its effectiveness. Trimethoprim/sulfamethoxazole was previously internationally used (and continues to be used in the U.S. and Canada), the additional of the sulfonamide gave little additional benefit compared to the trimethoprim component alone. It however is responsible for a high incidence of mild allergic reactions and rare but serious complications. A three day treatment of trimethoprim/sulfamethoxazole or ciprofloxacin is usually all that is needed.

Though there is anecdotal evidence of benefits, and many doctors recommend them as part of a treatment or preventive regimen, there are no clinical trials on humans proving benefits of cranberry juice, cranberry supplements, or D-mannose in the treatment or prevention of UTIs[7][8]>[9]

[edit] Pyelonephritis

If the patient has symptoms consistent with pyelonephritis, intravenous antibiotics may be indicated. Regimens vary, usually Aminoglycosides (such as Gentamicin) are used in combination with a beta-lactam, such as Ampicillin or Ceftriaxone. These are continued for 48 hours after fever subsides. The patient may then be discharged home on oral antibiotics for a further 5 days.

If the patient makes a poor response to IV antibiotics (marked by persistent fever, worsening renal function), then imaging is indicated to rule out formation of an abscess either within or around the kidney, or the presence of an obstructing lesion such as a stone or tumor.

[edit] Children

For simple UTIs children often respond well to a 3 day course of antibiotics.[10]

[edit] Recurrent UTIs

See also Prevention (below)

Patients with recurrent UTIs may need further investigation. This may include ultrasound scans of the kidneys and bladder or intravenous urography (X-rays of the urological system following intravenous injection of iodinated contrast material). If there is no response to treatments, interstitial cystitis may be a possibility.

During cystitis, uropathogenic Escherichia coli (UPEC) subvert innate defenses by invading superficial umbrella cells and rapidly increasing in numbers to form intracellular bacterial communities (IBCs).[11]

[edit] Prevention

The following are measures that studies suggest may reduce the incidence of urinary tract infections. These may be appropriate for people, especially women, with recurrent infections:

  • Cleaning the urethral meatus (the opening of the urethra) after intercourse has been shown to be of some benefit; however, whether this is done with an antiseptic or a placebo ointment (an ointment containing no active ingredient) does not appear to matter.[12]
  • It has been advocated that cranberry juice can decrease the incidence of UTI (some of these opinions are referenced in External Links section). A specific type of tannin found only in cranberries and blueberries prevents the adherence of certain pathogens (eg. E. coli) to the epithelium of the urinary bladder. A review by the Cochrane Collaboration of randomized controlled trials states "some evidence from trials to show cranberries (juice and capsules) can prevent recurrent infections in women. Many people in the trials stopped drinking the juice, suggesting it may not be a popular intervention".[13]
  • For post-menopausal women, a randomized controlled trial has shown that intravaginal application of topical estrogen cream can prevent recurrent cystitis.[14] In this study, patients in the experimental group applied 0.5 mg of estriol vaginal cream nightly for two weeks followed by twice-weekly applications for eight months.
  • Often long courses of low dose antibiotics are taken at night to help prevent otherwise unexplained cases of recurring cystitis.
  • Acupuncture has been shown to be effective in preventing new infections in recurrent cases.[15][16][17] One study showed that urinary tract infection occurrence was reduced by 50% for 6 months.[18] However, this study has been criticized for several reasons.[19] Acupuncture appears to reduce the total amount of residual urine in the bladder[citation needed]. All of the studies are done by one research team without independent reproduction of results.

[edit] References

  1. ^ "Adult Health Advisor 2005.4: Bacteria in Urine, No Symptoms (Asymptomatic Bacteriuria)". http://www.med.umich.edu/1libr/aha/aha_asybac_crs.htm. Retrieved on 2007-08-25. 
  2. ^ "Urinary Tract Infections". http://www.braithwaite.yourmd.com/ypol/user/userMain.asp?siteid=1713982&content=userCustomPage&bcx=My%20Doctor^TAB~Web%20Site^MNU~Dr%20S.%20Braithwaite^PST^1713982~UTI^CAT^9&pageid=336989&rndm=0.2728092846502904. Retrieved on 2007-08-25. 
  3. ^ Hanson, LÅ (2004). "Protective effects of breastfeeding against urinary tract infection". Acta Pædiatr (93): 154–156. ISSN 0803-5253. http://www.cirp.org/library/disease/UTI/hanson1/. Retrieved on 10 August 2008. 
  4. ^ askdrsears.com
  5. ^ Urethra length is approximately 25–50 mm / 1-2 inches long in females, versus about 20 cm / 8 inches in males.
  6. ^ "Honeymoon Cystitis". http://healthlink.mcw.edu/article/998784819.html. Retrieved on 2007-11-02. 
  7. ^ "BestBets: Cranberry Juice for the treatment of UTIs". http://www.bestbets.org/bets/bet.php?id=1324. 
  8. ^ Urinary Tract Infection - Alternative medicine. Accessed October 4, 2008.
  9. ^ Urinary Tract Infection - eMedicine Health. Accessed December 26, 2008.
  10. ^ "BestBets: Is a short course of antibiotics better than a long course in the treatment of UTI in children". http://www.bestbets.org/bets/bet.php?id=939. 
  11. ^ Justice S, Hunstad D, Seed P, Hultgren S (2006). "Filamentation by Escherichia coli subverts innate defenses during urinary tract infection". Proc Natl Acad Sci U S A 103 (52): 19884–9. doi:10.1073/pnas.0606329104. PMID 17172451. 
  12. ^ Meyhoff H, Nordling J, Gammelgaard P, Vejlsgaard R (1981). "Does antibacterial ointment applied to urethral meatus in women prevent recurrent cystitis?". Scand J Urol Nephrol 15 (2): 81–3. PMID 7036332. 
  13. ^ RG Jepson, JC Craig (2008). "Cranberries for preventing urinary tract infections.". Cochrane Database Syst Rev: CD001321. PMID 14973968. 
  14. ^ Raz R, Stamm W (1993). "A controlled trial of intravaginal estriol in postmenopausal women with recurrent urinary tract infections.". N Engl J Med 329 (11): 753–6. doi:10.1056/NEJM199309093291102. PMID 8350884. 
  15. ^ Aune A, Alraek T, Huo L, Baerheim A (1998). "[Can acupuncture prevent cystitis in women?]". Tidsskr Nor Laegeforen 118 (9): 1370–2. PMID 9599500.  (cf acupuncture group, x2 incidents in the sham group, x3 in the control group)
  16. ^ Alraek T, Baerheim A (2001). "'An empty and happy feeling in the bladder.. .': health changes experienced by women after acupuncture for recurrent cystitis". Complement Ther Med 9 (4): 219–23. doi:10.1054/ctim.2001.0482. PMID 12184349. 
  17. ^ Alraek T, Baerheim A (2003). "The effect of prophylactic acupuncture treatment in women with recurrent cystitis: kidney patients fare better". J Altern Complement Med 9 (5): 651–8. doi:10.1089/107555303322524508. PMID 14629843.  (highlights need for considering different TCM diagnostic categories in acupuncture research)
  18. ^ Alraek T, Soedal L, Fagerheim S, Digranes A, Baerheim A (2002). "Acupuncture treatment in the prevention of uncomplicated recurrent lower urinary tract infections in adult women.". Am J Public Health 92 (10): 1609–11. PMID 12356607. 
  19. ^ Katz AR (2003). "Urinary tract infections and acupuncture". Am J Public Health 93 (5): 702; author reply 702–3. PMID 12721123. 

[edit] See also

[edit] External links

v  d  e
Urinary system · Pathology · Urologic disease / Uropathy (N00-N39, 580-599)
By syndrome
By condition
General syndromes


UPS: Press Release - Sent Using Google Toolbar

UPS: Press Release

Global Supply Chains Not Ready for Challenging Times
Press Release

Survey Shows Businesses Ignore Risks, Raise Vulnerabilities

ATLANTA, Dec. 1, 2008 - Nearly half of companies with global supply chains say they fear major disruptions in their ability to source, produce and ship goods around the world. And they're not doing much to prevent it.

In a new survey sponsored by UPS, 47 percent of companies say they need to pay more attention to risk mitigation compared to just 16 percent that believe they pay an adequate amount of attention. As a result, only 38 percent of those surveyed rate the resilience of their supply chain above average, while a troubling 42 percent say the expansion of their global supply chains has outpaced their ability to manage risk.  

The global survey of nearly 350 senior executives was released today by UPS and the Economist Intelligence Unit. The survey itself was supplemented with interviews of academic experts and leading supply chain practitioners.

"Businesses appear to be increasingly vulnerable to supply chain disruptions that can have a catastrophic impact on business performance," said Dan Brutto, president, UPS International. "Success in the global economy depends in large part on building successful risk mitigation strategies that can turn a resilient supply chain into a competitive advantage."

Kim Andreasson, senior editor at the Economist Intelligence Unit and the editor of the report, points out that companies today already are more vulnerable as a result of having created tighter and leaner supply chains. "A lean organization is a requirement for competitiveness, but that can also expose a business to an increasing number of risks," he adds.

The survey pointed out some troubling findings, reinforcing the point that rising risks to supply chain resilience are too often ignored in the rush of day-to-day business - and companies know it.

For example, insufficient monitoring, risk assessment and contingency planning are leaving companies ill-prepared when crises hit. One of every 10 companies do not monitor suppliers for anything. About half of the remainder look only at immediate suppliers. Furthermore, in almost half the companies surveyed, formal risk assessment takes place only annually.

"Although some companies are taking sensible precautions to address risk, too many firms are leaving themselves open to unanticipated dangers," said Brutto. "And some of the steps companies are taking to improve resilience are not necessarily the best choices."

For example, a significant minority of businesses are falling back on increased inventory to address resilience problems, an expensive and ineffective approach. Almost half the companies surveyed expect to hold additional stock and raise inventory even more in the future.

Low-cost country sourcing, which has grown significantly in recent years, brings its own set of challenges to global supply chains. Almost half of all survey respondents said low-cost sourcing had posed significant problems, such as the quality received from such suppliers and even their ability to deliver goods as promised. Although most companies intend to increase their low-cost sourcing, 10 percent of those surveyed intend to reduce it.

"We don't expect to see low-cost sourcing go away," said Brutto, "but it will look different in the future. The keys to successful sourcing from low-cost countries are like those of supply chain resilience in general:  understand the issues, structure the supply chain appropriately, monitor performance and work with suppliers to improve operations." He also noted that multi-sourcing and near-sourcing to enhance resilience are likely to become part of best practices in the future.

Brutto offered four recommendations that companies should consider as they operate in an increasingly risk-filled environment:

Assess your supply chain
"Companies need to map their existing supply chains to assess points of vulnerability," said Brutto. "These could be a key supplier critical to your organization, a bottleneck from using a single port of entry for all your products into a continent or a single transportation mode that could make your supply chain susceptible to a strike or some natural disaster. Once these points of failure are identified, you can develop contingency plans to mitigate risks."

Develop alternative plans
"Critical supplier risk can be mitigated by developing alternate sources of supply," said Brutto. "A bottleneck can be alleviated through setting up alternate entry points to less-crowded ports. Adopting a multi-modal strategy will give you flexibility to move your product if your primary mode were to fail."

Ensure visibility across your supply chain
"Supply chain visibility is the key to a resilient supply chain," said Brutto. "Because supply chains today span multiple continents and multiple partners, you need visibility into the progress of your purchase order through your supplier's manufacturing process, during the transportation of the product through your freight forwarder and delivery to your facility. In addition, you need order cycle visibility through the distribution process. Having real-time visibility across your supply chain will enable you to identify a problem as soon as it occurs and put your contingency plans in action."

Develop key partnerships with your logistics providers
"Developing trusted partnerships with your logistics providers can increase the resilience of your supply chain," said Brutto.  "Integrated logistics partners have the ability to provide supplier management services, enable excellent visibility to products within the supply chain and implement a multi-modal strategy. They also enable smooth trans-border movements of goods and can quickly implement an alternate operating plan to get around bottlenecks."

While the challenges are daunting, there is an upside: an opportunity for competitive advantage. "By pursuing risk mitigation and resiliency strategies, supply chain executives can help their organizations grow and retain customers, increase revenues and profits and improve shareholder value," Brutto concluded.

View the entire report and more survey results at longitudes08.com .

UPS is the world's largest package delivery company and a global leader in supply chain and freight services. With more than a century of experience in transportation and logistics, UPS is a leading global trade expert equipped with a broad portfolio of solutions. Headquartered in Atlanta, Ga., UPS serves more than 200 countries and territories worldwide. The company can be found on the Web at UPS.com.

# # #

For More Information Contact:

Norman Black


phantom stock

Phantom Stock

From Wikipedia, the free encyclopedia

  (Redirected from Phantom stock)
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Phantom stock is a method for companies to give their management or employees a bonus if the company performs well financially. Phantom stock provides a cash or stock bonus based on the value of a stated number of shares, to be paid out at the end of a specified period of time.

Phantom stock is essentially a cash bonus plan, although some plans pay out the benefits in the form of shares. Phantom stock is favored by closely held or family-owned companies who want to incentivize management and other employees without granting them equity. Phantom stock grants align employees' motives with owners' motives (that is, profit growth, increased stock prices) without granting employees an actual ownership stake in the company. Phantom stock can, but usually does not, pay dividends. When the payout is made, it is taxed as ordinary income to the employee and is deductible to the employer. Generally, phantom plans require the employee to become vested, either through seniority or meeting a performance target.

Normally, phantom stock is taxable upon vesting, even if not paid out. Use of a "rabbi trust" that subjects the payout to significant risk, such as the company not being able to pay creditors, may solve this problem.

Phantom stock accounting is straightforward. These plans are treated in the same way as deferred cash compensation. As the amount of the liability changes each year, an entry is made for the amount accrued. A decline in value would reduce the liability. These entries are not contingent on vesting. Phantom stock payouts are taxable to the employee as ordinary income and deductible to the company. However, they are also subject to complex rules governing deferred compensation that, if not properly followed, can lead to penalty taxes.

[edit] External links

Phantom Stock and Stock Appreciation Rights (SARs)

For many companies, the route to employee ownership is through a formal employee ownership plan such as an ESOP, 401(k) plan, stock option, or employee stock purchase plan (ESPPs - a regulated stock purchase plan with specific tax benefits). But for others, these plans, because of cost, regulatory requirements, corporate considerations, or other issues will not be the best fit. Other companies may have one or more of these plans but want to supplement them for certain employees with another kind of plan. For these companies, phantom stock and stock appreciation rights may be very attractive.

There are a number of situations that might call for one or more of these plans:

  • The company's owners want to share the economic value of equity, but not equity itself.
  • The company cannot offer conventional kinds of ownership plans because of corporate restrictions, as would be the case, for instance, with a Limited Liability Corporation, partnership, a sole proprietorship, or an S corporation concerned about the 100-owner rule.
  • The company already has a conventional ownership plan, such as an ESOP, but wants to provide additional equity incentives, perhaps without providing stock itself, to selected employees.
  • The company's leadership has considered other plans but found their rules too restrictive or implementation costs too high.
  • The company is a division of another company, but can create a measurement of its equity value and wants employees to have a share in that even though there is no actual stock.
  • The company is not a company - it is a nonprofit or government entity that nonetheless can create some kind of measurement that mimics equity growth that it would like to use as a basis to create an employee bonus.

This article provides a brief overview of the design, implementation, accounting, valuation, tax, and legal issues for the four kinds of plans it covers. None of these plans should be set up without the detailed advice of qualified legal and financial counsel. Sharing equity is a major step that should be considered thoroughly and carefully.

Phantom Stock

Phantom stock is simply a promise to pay a bonus in the form of the equivalent of either the value of company shares or the increase in that value over a period of time. For instance, a company could promise Mary, its new employee, that it would pay her a bonus every five years equal to the increase in the equity value of the firm times some percentage of total payroll at that point. Or it could promise to pay her an amount equal to the value of a fixed number of shares set at the time the promise is made. Other equity or allocation formulas could be used as well. The taxation of the bonus would be much like any other cash bonus--it is taxed as ordinary income at the time it is received. Phantom stock plans are not tax-qualified, so they are not subject to the same rules as ESOPs and 401(k) plans, provided they do not cover a broad group of employees. If they do, they could be subject to ERISA rules (see below). Unlike SARs, phantom stock may reflect dividends and stock splits. Phantom stock payments are usually made at a fixed, predetermined date.

Stock Appreciation Rights

A stock appreciation right (SAR) is much like phantom stock, except it provides the right to the monetary equivalent of the increase in the value of a specified number of shares over a specified period of time. As with phantom stock, this is normally paid out in cash, but it could be paid in shares. SARs often can be exercised any time after they vest. SARs are often granted in tandem with stock options (either ISOs or NSOs) to help finance the purchase of the options and/or pay tax if any is due upon exercise of the options; these SARs sometimes are called "tandem SARs."

One of the great advantages of these plans is their flexibility. But that flexibility is also their greatest challenge. Because they can be designed in so many ways, many decisions need to be made about such issues as who gets how much, vesting rules, liquidity concerns, restrictions on selling shares (when awards are settled in shares), eligibility, rights to interim distributions of earnings, and rights to participate in corporate governance (if any).

Tax Issues

For both phantom stock and SARs, employees are taxed when the right to the benefit is exercised. At that point, the value of the award, minus any consideration paid for it (there usually is none) is taxed as ordinary income and is deductible to the employee. If the award is settled in shares (as might occur with an SAR), the amount of the gain is taxable at exercise, even if the shares are not sold. Any subsequent gain on the shares is taxable as capital gain.

Accounting Issues

The company must record a compensation charge on its income statement as the employee's interest in the award increases. So from the time the grant is made until the award is paid out, the company records the value of the percentage of the promised shares or increase in the value of the shares, pro-rated over the term of the award. In each year, the value is adjusted to reflect the additional pro-rata share of the award the employee has earned, plus or minus any adjustments to value arising from the rise of fall in share price. Unlike accounting for variable award stock options, where a charge is amortized only over a vesting period, with phantom stock and SARs, the charge builds up during the vesting period, then after vesting all additional stock price increases are taken as they occur. when the vesting is triggered by a performance event, such as a profit target. In this case, the company must estimate the expected amount earned based on progress towards the target. The accounting treatment is more complicated if the vesting occurs gradually. Now each tranche of vested awards is treated as a separate award. Appreciation is allocated to each award pro-rata to time over which it is earned.

If SARs or phantom stock awards are settled in shares, however, their accounting is somewhat different. The company must use a formula to estimate the present value of the award at grant, making adjustments for expectd forfeitures.

ERISA Issues

If the plan is intended to benefit most or all employees in ways similar to qualified plans like ESOPs or 401(k) plans, and it defers some or all payment until after termination, it may be considered a de facto "ERISA plan." ERISA (the Employee Retirement Income and Security Act of 1974) is the federal law that governs retirement plans. It does not allow non-qualified plans to operate like qualified plans, so the plan could be ruled illegal. Similarly, if there is an explicit or implied reduction in compensation to get the phantom stock, there could be securities issues involved, most likely anti-fraud disclosure requirements. Phantom stock plans designed just for a limited number of employees, or as a bonus for a broader group of employees that pays out annually based on a measure of equity, would most likely avoid these problems.

Planning Issues

The first issue is figuring out how much phantom stock to give out. Care must be taken to avoid giving out too much to early participants and not leaving enough for later employees. Second, the equity of the company must be valued in a defensible, careful way. Third, tax and regulatory problems may make phantom stock more dangerous than it seems. Cash accumulated to pay for the benefit may be subject to an excess accumulated earnings tax (a tax on putting too much money in reserve and not using it for business). If funds are set aside, they may need to be segregated into a "rabbi trust" or "secular trust" to help avoid causing employees to pay tax on the benefit when it is promised rather than paid. Finally, if the plan is intended to benefit more than key employees and defers some or all payment until after termination or retirement, it may be considered a de facto "ERISA plan." ERISA (the Employee Retirement Income and Security Act of 1974) is the federal law that governs retirement plans.

Our Book on Phantom Stock, SARs, and Related Plans

Our book Beyond Stock Options has chapters on phantom stock and SARs, restricted stock, and other such plans, plus sample plan documents (which are included in word-processing format on a CD that comes with the book).

« Back   ^^Top of Page

Copyright © 2005 by The National Center for Employee Ownership (NCEO) (phone 510/208-1300; email nceo@nceo.org; WWW http://www.nceo.org/). All rights reserved. 


Phantom Stock

From: 101 Great Ideas for Managing People FROM AMERICA'S MOST INNOVATIVE SMALL COMPANIES | October 1999

John Lucey faced a challenge that's a perennial quandary among owners of family businesses and other closely heldcompanies: How to compensate fairly and motivate essential nonfamily managers without granting them equity. "I have onekey employee who brings a lot of value to the company," says Lucey, president of Wakefield Distribution Systems, awarehousing, transportation, and moving company based in Danvers, Mass. "I wanted to give her a long-term incentive tostay with us."

Lucey's solution was a "mirror" or "phantom" stock plan that his lawyer helped him devise and which was implemented in1994. This compensation tool is designed to motivate and retain key employees without sharing ownership in the company.Such plans can yield some of the same payoffs as equity grants or stock options. Using phantom stock "it's possible to pass onthe same financial reward to executives or others without incurring any of the risks or complications that might accompanythe sharing of equity," notes Jim Scannella, a principal in Arthur Andersen's human capital services group.

Here's how phantom stock plans work: You give your executive 1,000 shares of so-called phantom stock at, say, $10 a share.The phantom stock is not actual equity but is tied to the value of your company's stock. You schedule a company valuation forsome future date -- or spell out a formula that will determine the stock's value. If the valuation or the valuation formula showsthat your company's stock has risen by, say, $30 a share, you send the executive a $30,000 check. At tax time, your companyqualifies for a $30,000 tax deduction, while your executive pays taxes on $30,000 worth of ordinary income.

Each year for 10 years at Wakefield Distribution Systems, senior vice president Gabrielle Fecteau, the employee whomLucey considers essential to his business, earns "stock" equal to 1% of the company's assessed value. At the end of that time,she may cash out over a 10-year period, collecting not more than 10% of her accumulated value each year. And ifLucey -- who owns the majority of the stock and whose children own the rest -- at some point declares a dividend, Fecteau isentitled to a percentage equivalent to the amount of "stock" she has earned up to that point. Wakefield's accounting firm doesan annual business valuation. Over the course of five years, Lucey says the value of the company -- which had 1998 revenuesof $18 million -- has almost doubled.

Fecteau's continued presence is critical to Lucey's succession plan. His three children, ages 31, 30, and 25, are all involvedin the business. "My son, Kevin, is managing a division of the company," says Lucey, "and I want to give him some time tomature and to learn the business from Gaby as well as from me. She has more time to teach and train than I do, plus, my songets a different perspective from her." Lucey expects to be actively involved in the business for another three to five yearsand hopes that after that, his son and Fecteau will run it together. In the meantime, Lucey is quite pleased with his phantomstock ? or, as he prefers to call it, mirror stock ? plan. "It's the best way to incentivize key employees in a family-ownedbusiness or small business," he says.

Copyright © 2008 Mansueto Ventures LLC. All rights reserved.
Inc.com, 7 World Trade Center, New York, NY 10007-2195.