Download - Rm2 Workshop Presentation Revised 25 05 11
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Mastering Employee Share Schemes
Thursday 25th May 2011
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benefitsmethods
about RM2
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Benefits
• boosts share values by aligning interests of participant and company
• striking tax advantages• succession planning opportunities• linkage to wealth management
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Boosting share values
• share price performance• productivity• gross value added• qualitative evidence
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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
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Concerns
• complexity• technical pitfalls• needs quoted stock• dilutive• costly • reduced control• ABI guidelines• accounting
standards
• real• real• no• choice• value & savings• choice• usually choice• choice
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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 servicesome financial commitment, CGT, dividends
Share Option:EMI, CSOP, SAYE, USOP
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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%)
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EMI tax treatment
• No tax on grant• Any discount to MV is IT on exercise• Otherwise CGT
• Beware : Entrepreneurs’ Relief : Disqualifying events
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Share Incentive Plan – 0% tax…
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How much to offer?• inclusive or selective?• looking forward or
back?• timescale• too little – wastes
equity• too much – wastes
equity
• 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.
effective incentives change behaviours
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Succession Planning
• shareholder can sell shares into trust• up to 100 per cent. of equity can be
transferred • CGT for shareholder, not dividend tax• tax efficient incentives for employees• corporation tax relief for employer• entrepreneurs’ concession now £10m
at 10 per cent – are you using yours?
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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.
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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
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complete solutions
scheme design documentation trustee services share capital structure valuation resolutions and minutes employee presentations administration, compliance
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About RM2• the most comprehensive employee share
scheme consultancy in the UK
• largest dedicated share scheme team
• more than 500 successful schemes
• from SMEs to large listed companies, every sector
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The RM2 Partnership Ltdwww.rm2.co.uk0800 043 81500208 949 5522
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Questions?