This document discusses incentive schemes for employees through shares and options. It addresses why companies offer shares/options to attract and retain key employees, for cash management, and to align employees' interests. Employees want shares/options for higher compensation and to participate in company growth. Common Norwegian incentive schemes include share purchases, grants, and options based on metrics like revenue, profit, work effort, innovation, and discretion. Shares pose investment risk but favorable taxation, while options have lower risk but employment income taxes. The document outlines considerations for incentive scheme design, including program type, company strategy, economics, timing, financing, dilution, and ownership structure.

1. INCENTIVE SCHEMES
2. september 2016
Daniel L. Høgtun

2. Advokatfirmaet Selmer DA  Doc. ref.: 901595 2
Shares and options – The two dimensions
Two dimensions: Employer and employee
1.Why does the company wants to compensate the employee with shares and /or options?
• Attract or retain key employees
• Cash management
• Align employees with the company (economically and emotionally)
1.Why does employees want to obtain or buy shares and / or options in the Company?
• Higher salary
• Greater upside
• Take part in building their "own" company

3. Advokatfirmaet Selmer DA  Doc. ref.: 901595 3
Generally about incentive schemes in Norway
What arrangements are there?
−Purchase or granting of shares
−Granting of share options (subscription rights, warrants, options)
−Cash bonus (bonus, synthetic shares)
Who should be included in the scheme?
−Management and selected employees, or a wider/general arrangement?
−Several different schemes?
On what basis?
−Revenue, profit, EBITDA and other economic variables
−Work effort, hours
−Innovation, milestones
−Customer satisfaction
−Pure discretion
−Company level, department level, individually?
Combinations

4. Advokatfirmaet Selmer DA  
EMPLOYEE EMPLOYER
4
Risk, financing and tax - different models
Options
∙ Low or no risk of loss until after exercise
∙ Low or no financing for employees until exercise
∙ Employment income on the option gain (up to
approximately 47%)
Shares
∙ Investment and risk of loss
∙ Financing necessary
∙ Favourable taxation of gains (capital not employment
income)
∙ Discount from FMV considered as employment income
Options
∙ Does not charge the company's liquidity (dilution) if
shares are issued
∙ Tax deduction equal to gain if the company has or obtains
shares that are awarded to the employees
∙ Employers' national insurance contribution on the gain
Shares
∙ No financing for the company
∙ Tax deduction on discount if the company has or obtains
shares that are awarded to the employees
∙ Employers' national insurance contribution on any discount
from FMV at the time of acquisition
Doc. ref.: 2185942
Bonus
∙ No downside for employees
∙ No financing for employees
∙ Employment income (up to approximately 47%)
Bonus
∙ Must be financed by the company – charges the liquidity
∙ Employers' national insurance contribution and holiday
pay
∙ Deduction for the cost

5. Advokatfirmaet Selmer DA  Doc. ref.: 2901595 5
Some important considerations
∙ What type of program?
− Shares have an additional incentive through risk
− The value of the company is important
− Early stage / low value (shares)
− Late stage / high value (shares and/or options)
∙ Strategy / exit
− The program should be aligned with the company's
strategy
∙ The economics of the program
− What shall give entitlement to shares/options (result,
days etc.)
− Number of shares that can be purchased / subscribed
for
− What price (discount, FMV etc.)
∙ Timing
− Ongoing, permanent or periodical models
− Situational exercise (milestones)
− Flexible exercise?
∙ Financing
− Consider both the need for financing and the costs of
the program (for shareholders. company and
employees)
∙ Dilution / control
− Consider effects
− Set limitations
− Different types of shares (e.g. limited voting rights)
∙ Lock up etc.
∙ Sales restrictions (potential tax effects)
∙ Good leaver / bad leaver
∙ Exercise restrictions
∙ Ownership
− Through a personal holding company?
− Must be controlled by employee?

6. Advokatfirmaet Selmer DA  Doc. ref.: 2901595 5
Some important considerations
∙ What type of program?
− Shares have an additional incentive through risk
− The value of the company is important
− Early stage / low value (shares)
− Late stage / high value (shares and/or options)
∙ Strategy / exit
− The program should be aligned with the company's
strategy
∙ The economics of the program
− What shall give entitlement to shares/options (result,
days etc.)
− Number of shares that can be purchased / subscribed
for
− What price (discount, FMV etc.)
∙ Timing
− Ongoing, permanent or periodical models
− Situational exercise (milestones)
− Flexible exercise?
∙ Financing
− Consider both the need for financing and the costs of
the program (for shareholders. company and
employees)
∙ Dilution / control
− Consider effects
− Set limitations
− Different types of shares (e.g. limited voting rights)
∙ Lock up etc.
∙ Sales restrictions (potential tax effects)
∙ Good leaver / bad leaver
∙ Exercise restrictions
∙ Ownership
− Through a personal holding company?
− Must be controlled by employee?