《Employee Share incentives in UK》.pdf

Employee share incentives in the UK March 2011 Executive summary Many companies establish share incentive schemes to enable employees and senior executives to become shareholders in the business for which they work. There are several types of scheme that are commonly implemented. Some schemes – particularly those that are available to a wide range of employees – attract generous tax reliefs. This guide looks at the main types of share incentive scheme, concentrating on schemes that a listed company, or a company approaching IPO, may wish to introduce. Many of the structures described here can be readily implemented for employees based outside the UK, but without the tax reliefs described here. Arrangements for executives The main share incentive schemes for executives comprise long-term incentives plans (LTIPs) (also known as performance share plans) and executive share option schemes. These are both described in section 2. LTIPs are now more common than executive share option schemes, although some companies operate both types of scheme. UK institutional shareholders in listed companies have developed detailed guidelines governing the usage of share-based incentives. These require a challenging corporate performance target to be satisfied before an award or option may vest – thus preventing an executive from benefiting unless the company can demonstrate the achievement of demanding financial performance. The guidelines recommend that share incentives should be part of the annual remuneration package and be granted on an annual, phased basis rather than in a single block. They also impose limits on the dilution of equity arising from share issues on exercise of options or vesting of awards. Companies also operate arrangements under which executives receive part of their annual bonus in shares. This may involve simply the deferral of some bonus into shares that vest after a