Your SlideShare is downloading. ×
  • Like
Using Employee Share Schemes To Build Shareholder Value - July 2011
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Now you can save presentations on your phone or tablet

Available for both IPhone and Android

Text the download link to your phone

Standard text messaging rates apply

Using Employee Share Schemes To Build Shareholder Value - July 2011

  • 1,393 views
Published

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
1,393
On SlideShare
0
From Embeds
0
Number of Embeds
1

Actions

Shares
Downloads
9
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Rewarding employees and increasing shareholder value using share schemes 15 July 2011
  • 2.
    • benefits
    • methods
    • considerations
  • 3. Benefits
    • boosts share values by aligning interests of participant and company
    • promotes profit awareness
    • striking tax advantages
    • cash flow advantages
    • engagement of employees
    • succession planning opportunities
  • 4. boosting share values
    • share price performance
    • productivity
    • gross value added
    • qualitative evidence
  • 5. tax advantages
    • default tax on all benefits = income tax
            • but ...
    • approved share options = CGT only
    • deferred share purchase = CGT only
    • approved share incentive plans
        • = reduced IT or no tax at all
        • Beware! Disguised Remuneration
  • 6. Concerns
    • complexity
    • technical pitfalls
    • needs quoted stock
    • dilutive
    • costly
    • reduced control
    • ABI guidelines
    • accounting standards
    • real
    • real
    • no
    • choice
    • value & savings
    • choice
    • usually choice
    • public or private?
  • 7. Methods: Types of Schemes The medium Share Purchase: DSPP, JSOP Share Gift: The Share Incentive Plan The message no risk, CGT, no dividends or votes some risk, low or no tax, dividends, appreciation of past service some financial commitment, CGT, dividends Share Option: EMI, CSOP, SAYE, USOP
  • 8. Enterprise Management Incentives
    • UK’s most favoured share scheme
    • Flexible individual options
    • Share value agreed in advance
    • Limit of £120,000 / £3 million
    • Qualifying criteria :
    • - company : trade, < 250 employees
    • < £30m gross assets, group structure
    • - employee : working time 25hrs / 75%
    • no material interest (30%)
  • 9. EMI tax treatment
    • No tax on grant
    • Any discount to MV is IT on exercise
    • Otherwise CGT
    • Beware : Entrepreneurs’ Relief
    • : Disqualifying events
  • 10. Share Incentive Plan
  • 11. Free Shares
    • Shares awarded free of tax and NIC
    • Up to £3,000 per year
    • Award can be linked to performance
    • Holding period of 3 to 5 years
    • Forfeitable
    • Free-standing module
  • 12. Partnership Shares
    • Employee allocates pre-tax salary to buy shares to limit of £1,500 or 10% of salary
    • Shares purchased monthly or rolled up over an accumulation period of up to 12 months
    • Purchase price is lower of market value at start or end of period
    • Forfeiture and holding period not applicable
    • NIC savings potential (employer 13.8 %)
  • 13. Matching Shares
    • Awarded in relation to partnership shares
    • Matching on same basis to all employees
    • Ratio of up to 2 matching shares to each partnership share
    • Additional to any free shares awarded
    • Holding period of 3 to 5 years
    • Forfeitable
  • 14. Dividend Shares
    • Reinvestment of gross dividends permitted
    • Employer choice
    • Reinvestment must be within 30 day period
    • Generous tax-free limits
    • Not forfeitable
    • 3 year holding period unless leaver
  • 15. The Limits
  • 16. Tax Treatment
    • Income tax regime if < holding period
    • CGT-free arrangement (0% tax !)
    • Corporation tax relief for:
      • costs of setting up and administration
      • gross salary allocated to buy Partnership Shares
      • market value of Free and Matching Shares
    • Potential NIC savings on Partnership Shares
  • 17. how much to offer?
    • inclusive or selective?
    • looking forward or back?
    • timescale
    • too little – wastes equity
    • too much – wastes equity
    effective incentives change behaviours
  • 18. Dilution
    • Dilution versus growth
    • Can be managed using a trust
    • Care re Entrepreneur’s Relief
    • ABI Guidelines
    • Typical dilution levels:
      • all-employee schemes: 5-10 per cent.
      • targeted schemes: 5-15 per cent.
  • 19. Succession Planning
    • shareholder can sell shares into trust
    • CGT for shareholder, not dividend tax
    • tax efficient incentives for employees
    • corporation tax relief for employer
    • entrepreneurs’ relief now £10m at 10 per cent – too good to last?
  • 20. Succession planning shareholder trust company shares £ (CGT) £ benefits (low tax) CT relief employees
  • 21. Considerations: Complexity
    • Corporate strategy/ethos
    • Company law
    • Employment law
    • Trust law
    • Tax law
    • Company finance
    • Exit strategy
    • Valuation
    • Accounting Issues
    • Communications and PR
    Solution: comprehensive advice and support
  • 22. Timescales
    • Approved scheme (SAYE, CSOP, SIP):
      • 4 to 6 months (much longer if non-standard articles)
    • Registered scheme (EMI)
      • In principle, 6-8 weeks
    • Unapproved scheme
      • In principle, 4-6 weeks
  • 23. Leavers
    • CSOP, EMI options may lapse
    • Good leavers:
      • Illness, disability, transfer of employment, retirement, death, redundancy (?)
    • For “bad” leavers:
      • SIP shares can be forfeit
      • SAYE options may lapse
    • Articles of Association & Shareholder Agreement
  • 24. E mployee Communications
    • explanatory literature
    • scheme presentations – pre and post
    • email and telephone helpline
    • employee tax support
    • intranet and website
  • 25. Plan Administrators – Why?
    • ensure an audit trail of all actions, timely completion and ongoing compliance;
    • generate comprehensive reports of plan benefits by company and employee;
    • validate all awards and exercise events;
    • track all leavers and joiners;
    • manage document production;
    • calculate taxable amounts in relation to transactions, ready for submission to the company’s internal or external PAYE facility;
    • generate plan returns, trustee self-assessment returns and trust accounts where applicable.
    • employees and employers are able to access data and make plan choices on the system via a bespoke plan website.
  • 26. Complete Solutions
    • scheme design/health check
    • documentation
    • trustee services
    • share capital structure
    • valuation
    • resolutions and minutes
    • employee communications
    • administration, compliance
  • 27. About RM2
    • A leading full service employee share scheme consultancy
    • 15 years of share scheme experience
    • from SMEs to large listed companies, every sector
  • 28. Success story
    • A wireless payment company wanted to incentivise senior staff to build shareholder value ahead of an exit.
    • In 2006 we implemented a tax-efficient share option scheme for them, the Enterprise Management Incentive at an exercise price of £6.15 per share. The company was sold earlier this year (2011) for £117 per share.
    • Several employees made six figure gains and 2 employees became instant millionaires.
  • 29.
    • The RM2 Partnership Ltd
    • www.rm2.co.uk
    • 0800 043 8150
    • 0208 949 5522
    • [email_address]