Below provides an overview of the Employee Share Plans we manage on behalf of many leading UK companies.
Sharesave (SAYE) is a savings vehicle for employees of companies which operate savings related share option schemes. Companies operating Sharesave schemes are required to notify HM Revenue & Customs (HMRC) that the scheme meets legislative requirements to obtain tax advantages for employees.
The company offers its employees the option to buy shares in the company at a future date. The option may be granted at a discount of up to 20% of the current share price.
The employee then elects to save between £5 and up to £500 (companies may specify a lower maximum) per month out of net pay on a 3 or 5 years saving contract. When the contract matures, a tax free bonus may be received, however, currently there is no bonus payable on 3 or 5 year sharesave schemes. The employee can then choose either to exercise the option to buy the shares with the proceeds from the savings contract (there is no obligation to purchase), or just to take the proceeds and any bonus.
The bonuses are equivalent to a fixed rate of interest and are set by HMRC. No Income Tax or National Insurance Contributions are incurred on the granting or exercising of SAYE options – there can be an Income Tax charge on exercise if this occurs within 3 years of grant in circumstances other than redundancy, retirement, injury, disability or death – of options.
Share Incentive Plan
The Share Incentive Plan was introduced in the Finance Act 2000. HMRC have given companies the flexibility to have varying plan designs to suit the individual objectives unique to each company. Share Incentive Plans have flexibility as part of their design brief.
The Share Incentive Plan more commonly referred to as the SIP, can offer a combination of four types of shares, these being free, partnership, matching and dividend shares.
How your SIP works is determined by what suits your company best. For example, your company can offer all, or a combination of the above share types and on a variety of frequencies. The plan design can change year on year to meet the differing needs of your company objectives.
A Share Incentive Plan used to be referred to as the All Employee Share Ownership Plan, or AESOP. It is a tax-efficient way for employees to invest in their company. Companies have the flexibility to tailor this plan to meet specific business needs. This re-enforces the need to understand your company's needs and desires from the SIP, right from the outset.
Global Share Plans
Global Share Plans replicate the mechanics of a traditional UK plan and are offered to employees across the company regardless of the jurisdiction in which they work. They form part of a company's overall remuneration strategy to align benefits across the Group and can either be approved sharesave plans that maximise the tax legislation in each country or unapproved plans that mirror a plan already in existence which may not carry tax advantages.
Discretionary Share Plans
Discretionary or “Executive” Share Plans enable companies to attract, retain and motivate key employees by offering them share options or awards of free shares. They come in a variety of types and are known by a variety of names including Company Share Option Plans, Employee Share Option Schemes, Long Term Incentive Plans, Performance Share Plans, Restricted Stock Units, Nil-Cost Options and Conditional Share Awards.
They form part of the company’s overall remuneration strategy and use performance conditions to align the interests of shareholders and senior staff.
Discretionary Plans are flexible and plan designs will vary to meet the particular objectives of each company. Depending upon the specific design of the plans they may or may not be tax–advantaged.