Employee Share Incentive Plans
At David Venus & Company we have successfully set up many approved and unapproved share option plans for clients.
As well as preparing and drafting option agreements and board approval documentation, we understand the importance of protecting employers’ and beneficial owners’ interests and we will carry out a review of the company’s articles of association and advise on changes we believe necessary to safeguard these interests; by limiting voting rights, providing pre emption and transfer restrictions or setting other conditions in respect of the shares to be acquired upon exercise of options.
Here is a summary of two of the HM Revenue & Customs (“HMRC”) approved schemes implemented by companies wishing to motivate, reward and retain staff:-
Enterprise Management Incentives ("EMIs")
EMIs are an effective way of motivating employees when share prices are low and most companies are closely monitoring cash flow.. They are designed to help companies attract and retain the key people they need and to reward these employees for investing their energy and skills in helping the company achieve its potential.
There is no scheme approval procedure – companies may enter into individual EMI share option agreements with each employee and these must be notified to HM Revenue & Customs within 92 days of the date of grant. There will normally be no tax or National Insurance (“NIC”) for the employee to pay when the options are exercised; nor will there normally be any NIC charge on the employer.
Share Incentive Plans
The Share Incentive Plan ("SIP") was introduced in 2000 as part of the Government’s drive "to close the productivity gap and promote a new enterprise culture".
The plan must be offered to all employees whether they work full or part time. Companies can require employees to have completed a minimum qualifying period of employment before they can participate, but that period must not be more than 18 months.
Flexibility is the key element of this plan and companies are able to choose between a combination of three modules:-
- Free Shares – Employers can give up to £3,000 worth of free shares per employee per annum, which may be linked to performance;
- Partnership Shares – Employees can use up to £1,500 to buy shares from their pre-tax pre-NIC salary to buy partnership shares;
- Matching Shares – Employers can give employees up to two free shares for each partnership share the employee buys.
Companies can also allow an employee to use up to £1,500 of dividends from his/her plan shares each year to buy further shares in the company through the plan.
Employees are able to receive shares under other HMRC approved plans at the same time as under a SIP provided their total shareholding does not cause them to exceed the 'material interest' limit of 25%.
We also set up Unapproved Share Option Plans for clients, either as free-standing or, more usually, to sit alongside an approved scheme. There are three principal reasons why an unapproved plan might be preferred to an approved; flexibility as to terms and conditions; the enhanced number of shares which can be placed under option in respect of any one participant; and the opportunity to award share options to directors, employees and consultants who do not qualify under approved plans.
Most executive plans are designed to provide rewards only if the financial performance of the company exceeds certain targets that are established when the options are granted. The primary reasons for the popularity of such plans are the closer alignment with investors’ interests and the creation of motivational interest for employees and directors.
Why use us?
We have the capability and skill in-house to assist with the implementation of an approved or an unapproved option plan tailored to your specific requirements and objectives and to liaise with HMRC to obtain prior approval, if required. For companies with existing plans in place we can assume responsibility of the day to day administration by maintaining the registers of optionholders, dealing with vesting and exercise queries, advising on close and prohibited periods and directors' dealing policies. We can also generate the necessary reports and vesting/exercise schedules for inclusion in a company’s financial statements and to fulfil HMRC annual reporting obligations.
For further information or advice please email info@davidvenus.com or phone 01372 465330.
