We analyze and test a laboratory benchtop version of a compound interf
erometric phase sensor, a Michelson interferometer whose output is com
bined coherently with a phase-modulated local oscillator beam tapped o
ff the Michelson input beam. This configuration models a whole class o
f external-modulation interferometers designed to shift signals, obscu
red by low-frequency intensity noise of the light source, into a shot-
noise-limited region of the photocurrent spectrum. We find analyticall
y that the shot-noise-limited sensitivity achievable with this system
is comparable with that obtained by using internal phase modulation, w
ith both schemes suffering (for different reasons) approximately a 22%
sensitivity penalty compared with ideal shot-noise-limited direct det
ection. Experimentally we achieve true shot-noise-limited sensitivity,
and we investigate trade-offs necessitated by commonly encountered no
nideal features in any external-modulation system. Our analytic model,
which specifically accounts for Michelson fringe contrast, electronic
receiver noise, phase-modulation depth, and the local oscillator tap-
off fraction, is sufficiently accurate to predict the absolute sensiti
vity of our benchtop instrument to within 0.5 dB.