Vanadium dioxide (VO 2 ) is a phase change material (PCM) that exhibits a large change in complex refractive index on the order of unity upon switching from its dielectric to its metallic phase. Although this property is key for the design of ultra-compact optical modulators of only a few-microns in footprint, the high absorption of VO 2 leads to appreciable insertion loss (IL) that limits the modulator performance. In this work, through theory and numerical modeling, we report on a new paradigm, which demonstrates how the use of a hybrid plasmonic waveguide to construct a VO 2 based modulator can improve the performance by minimizing its IL while achieving high extinction ratio (ER) in comparison to a purely dielectric waveguide. The hybrid plasmonic waveguide that contains an additional metal layer with even higher loss than VO 2 enables unique approaches to engineer the electric field (E-field) intensity distribution within the cross-section of the modulator. The resulting Figure-of-Merit FoM = ER/IL is much higher than what is possible by simply incorporating VO 2 into a silicon wire waveguide. A practical modulator design using this new approach, which also includes input and output couplers yields ER = 3.8 dB/µm and IL = 1.4 dB/µm (FoM = 2.7), with a 3-dB optical bandwidth >500 nm, in a device length = 2 µm, and crosssectional dimensions = 200 nm × 450 nm. To our knowledge, this is one of the smallest modulator designs proposed to-date that also exhibits amongst the highest ER, FoM, and optical bandwidth, in comparison to existing designs. In addition to VO 2 , we investigate two other PCMs incorporated within the waveguide structure. The improvements obtained for VO 2 modulators do not extend to other PCMs.