icsa shares conference july 2016

The ICSA Shares Conference 2016

IntroductionPeter Swabey FCIS Director of Policy and Research, ICSA

The Investment Association’s Productivity Action Plan

Andrew Ninian, Director, Corporate Governance and Engagement

05/01/2023

3

14 July 2016

THE UK’S PRODUCTIVITY PUZZLE

WHAT IS THE SCALE OF THE ISSUE?

Productivity Action Plan 4

1

The UK’s productivity growth remains 16% below its pre-2008 trend rate, and behind the G7 average

THE UK’S PRODUCTIVITY GAP


19911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201460

70

80

90

100

110

120

UK G7 Ave.

GDP

per h

our w

orke

d

Source: OECD: Office for National Statistics

… WHEN COMPARED WITH THE G7 …

The UK is behind all but Japan in GDP per hours worked, and others are increasing the gap


Canada France Germany Italy Japan US60

70

80

90

100

110

120

130

140

2010 2011 2012 2013 2014

GDP

per h

our w

orke

d

UK at 100

Source: OECD: Office for National Statistics

GOVERNMENT RESPONSE


Fixing the foundations: Creating a more prosperous nation (2015)

“Productivity will not be transformed overnight, but reforms will deliver a step change that can realise both the aspirations of working people, and the ambition that our children’s lives will be better than our own.”

- George Osbourne, Chancellor of the Exchequer

ROLE OF LONG-TERM INVESTMENT

RESPONDING TO GOVERNMENT


2

THE RESPONSE OF ASSET MANAGERS

Letter to the Chancellor:

• A group of our members wrote to the Chancellor, supporting the Chancellor’s commitment to address UK competitiveness and productivity.

• Letter acknowledged the important role that Asset Managers play in supporting productivity improvements through long-term investment.

• Committed the Investment Association to develop an Action Plan.

The Investment Association:

• The Investment Association represents the UK investment management industry.

• Our members manage over £5.5 trillion of assets on behalf of UK and overseas clients - about 30% of the UK stock market.


UK investment as a proportion of GDP has declined since 2001, and is behind other G7 members

NEED FOR GREATER LONG-TERM INVESTMENT


Source: Office for National Statistics, 2014

2001 2003 2005 2007 2009 2011 201310

12

14

16

18

20

22

24

Canada France Germany ItalyJapan USA UK Trend (UK)

Capi

tal I

nves

tmen

t as a

pro

porti

on o

f GDP

LONG-TERM INVESTMENT AND PRODUCTIVITY

Increasing productivity requires long-term investment in infrastructure, factories and equipment, research and development and real estate.

However, the UK's post-financial crisis regulatory framework is not well-structured to facilitate long-term investment.

Improving the availability of and access to long-term investment would contribute to confidence, job creation and business investment, from an SME raising money to invest in new machinery to multibillion pound infrastructure projects.


Increased shareholder

value

Improvements in

Productivity

Confidence and Job Creation

Long-term investments

DEVELOPING OUR RESPONSE

REVIEW FRAMEWORK AND PRINCIPLES


3

METHODOLOGY

Investor-led:

• Intellectual stewardship and guidance was provided by an industry Steering Committee made up of CEO’s and senior fund managers of some of the largest investors in the UK

• The Steering Committee was tasked with developing a framework for considering the key components of, and challenges to, long-term investment

• Considered how the industry can play a vital role in helping businesses to drive sustainable long term returns

• No single silver bullet, there needs to be improvements across the investment chain


STEERING GROUP MEMBERSNick AndersonHead of Investment ResearchHenderson Global Investors

Richard BruxtonChief Executive OfficerOld Mutual Global Investors

Elizabeth FernandoHead of Equities USS Investment Management

Simon FraserChairmanThe Investor Forum

Simon GergelChief Investment Officer UK Equities Allianz Global Investors

William GilmoreHead of Private Equity Aberdeen Asset Management

Trevor GreenHead of UK EquitiesAviva Investors

Jessica GroundGlobal Head of StewardshipSchroders

George LuckraftSenior Portfolio ManagerAXA Investment Managers

James MacphersonCo-Head of UK EquitiesBlackrock

Helena MorrisseyChief Executive OfficerNewton Investment Management

Rod ParisChief Investment OfficerStandard Life Investments

Iain RichardsHead of Responsible InvestmentColumbia Threadneedle

Andrew SentenceSenior Economic Adviser PwC

Mark ZinkulaChief Executive OfficerLegal & General Investment Management

IMMEDIATE ISSUES AND CHALLENGES

• How do we define ‘productivity’?

• ROCE? Efficiency? Profitability?

• Defining capital base – consistently?

• Cost of capital? Hurdle rates?

• Access to capital – debt and equity.

• Investors’ time horizon.

• Regulators and unintended consequences.


INVESTOR PRODUCTIVITY PRINCIPLES


Enhance company reporting for efficient capital allocation

Through investment and analytical expertise, the investment industry will seek to identify and finance those companies contributing productive growth in the economy.

Enhance investor stewardship and engagement

The investment industry will engage with companies to help them achieve sustainable value creation over the long-term and support investments in improved productivity.Simplify behavioural incentives and the investment chain

The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives.

Develop efficient and diverse capital markets As key capital market participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets.

Overcome tax and regulatory impediments to support the provision of long-term finance

The investment industry should contribute to the debate on the tax and regulatory impediments to investment so as to ensure the right long-term outcomes for clients.

“A set of fundamental principles that seek to define an ideal framework for

how investors can contribute to productivity improvements”

REVIEWING THE CAPITAL CYCLE

Barriers and impediments:

• Unequal treatment of DB and DC schemes.

• Solvency rules leading to excessive de-risking.

• Mandates not always aligned with long-term approach and stewardship.

• Quarterly reporting encouraging short-termism and lacking focus on productivity.

• Executive remuneration creating perverse incentives and not linked to the long-term interests of the business.

• Tax-debt bias in funding structures leading to financial stability risks.


THE PLANTURNING PRINCIPLES INTO ACTION


4

PRINCIPLE ONE: ENHANCE COMPANY REPORTING FOR EFFICIENT CAPITAL ALLOCATION


SUPPORTING PRINCIPLE


REC

1IMPROVE REPORTING AND RESEARCH ON PRODUCTIVITY AND REFOCUS ON LONGER-TERM STRATEGIC DRIVERS

Seek clearer articulation and measurement of the long-term drivers of productivity and work with companies to develop appropriate Key Performance Indicators

Call for the provision of increased Longer-Term and Thematic Investment Research.

Issue a Public Position Statement calling for listed companies to cease quarterly reporting and refocus on a broader range of strategic issues.





REC

2IMPROVE REPORTING ON CAPITAL MANAGEMENT AND CLARIFY INVESTOR EXPECTATIONS OF CAPITAL MANAGEMENT

Work with companies to improve how they articulate their capital management strategy and reporting of outcomes.

Develop an investment industry Public Position Statement on how investor engagement can support and challenge company capital management decisions.

Encourage the FRC’s Financial Reporting Lab to undertake a project to develop best practice guidance on the consistent disclosure of a company’s cost of capital.





REC

3IMPROVE REPORTING ON CULTURE, HUMAN CAPITAL AND ACCOUNTING FOR INTANGIBLES

Raise the profile of Human Capital Management as a material investment consideration and promote better company reporting to facilitate enhanced investor analysis.

Engage with the IASB to expedite its research on accounting for intangible assets.

Support the work of the FRC’s Culture Project.

PRINCIPLE TWO: ENHANCE INVESTOR STEWARDSHIP AND ENGAGEMENT



The investment industry will engage with companies to help them achieve sustainable value creation over the long term and support investments in improved productivity.

REC

4MORE FORMALLY INCORPORATE A FOCUS ON LONG TERM VALUE CREATION AND PRODUCTIVITY INTO ENGAGEMENT PRACTICES

Seek wider support and financing for the work of the Investor Forum by launching an independent membership fee.

Support asset managers in the public reporting of stewardship activities.

PRINCIPLE THREE: SIMPLIFY BEHAVIOURAL INCENTIVES AND THE INVESTMENT CHAIN




REC

5ENSURE THAT THE RELATIONSHIP BETWEEN ASSET OWNERS AND INVESTMENT MANAGERS IS GOVERNED IN WAY THAT DOES NOT INADVERTENTLY EMBED A SHORT TERM FOCUS

Work with the pensions regulator, the PLSA, and investment consultants to develop best practice guidance on how stewardship and long term incentives can be better incorporated into the Statement of Investor Principles and Mandate design.

Investment consultants are encouraged to issue public position statements describing how their activities support the provision of long-term investment approaches and stewardship in mandate design and performance evaluation.





REC

6CONSIDERATION OF HOW GREATER OPPORTUNITIES FOR LONG TERM INVESTMENT CAN BE MADE AVAILABLE TO INVESTORS IN DEFINED CONTRIBUTION SCHEMES

Establish a working group of key stakeholders to consider the key regulatory and market barriers to creating a Direct Contribution investment environment more suited to long term investment.





REC

7FOSTER IMPROVED UNDERSTANDING OF THE INVESTMENT HORIZONS OF INVESTMENT MANAGERS

Examine methodologies for calculating average holding periods with a view to developing a standard approach across the industry.





REC

8ENSURE THAT EXECUTIVE REMUNERATION STRUCTURES ARE ALIGNED TO LONG-TERM DECISION MAKING

Consider the findings of the Executive Remuneration Working Group’s review of executive remuneration structures and launch an extensive programme of engagement with listed companies.

PRINCIPLE FOUR: DEVELOP EFFICIENT ANDDIVERSE CAPITAL MARKETS



As key participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets

REC

9ENCOURAGE EQUITY INVESTMENT AND IMPROVE THE EQUITY OFFERING PROCESS

Develop earlier engagement between institutional investors and small and mid-size early stage pre-IPO companies.

Engage with the European Commissions on the proposed Prospectus Regulation.

Lower the cost of issuing capital and removing the information asymmetry that exists at the expense of investors.

Engage with key stakeholders to improve and support the efficiency of the secondary market capital raising process whilst maintaining investor protections.

PRINCIPLE FOUR: DEVELOP EFFICIENT ANDDIVERSE CAPITAL MARKETS



As key participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets

REC

10ENSURE THE EFFICIENT OPERATION OF MARKETS FOR OTHER ASSET CLASSES TO ENSURE THE PROVISION OF DIVERSE CAPITAL MARKETS

Continue to engage with the European Commission non the proposed Prospectus Regulation to promote the key priorities of asset managers for non-equity securitiesPromote a more efficient new issuance process in fixed income markets and aide secondary market liquidity through the use of clear terminology and definitions.

Promote appropriate behaviours and investor expectations in fixed income markets and support the work of the FMSB and FCA Debt Markets Forum.Develop and promote guidelines for Housing Associations raising capital in public markets.

Work with the UK Municipal Agency to promote the development of a UK municipal bond market and highlight the interest of investors in this sector.Support on-going work to develop European Private Placements and the revival of the securitisation market in the UK and Europe.

PRINCIPLE FIVE: OVERCOME TAX AND REGULATORY IMPEDIMENTS TO THE PROVISION OF LONG-TERM FINANCE




REC

11ENSURE THAT SOLVENCY AND PRUDENTIAL REGULATION DOES NOT INADVERTENTLY IMPEDE INVESTMENT MANAGERS FROM INVESTING IN A MANNER CONSISTENT WITH THEIR CLIENTS’ LONG-TERM INTERESTS

Encourage the FCA to undertake a thematic review of whether the approach to market risk in prudential and conduct regulation is resulting in investment decisions that are consistent with the long-term investment objectives of clients.

Convene a multi-stakeholder Working Group to review the extent to which current accounting standards and solvency and prudential regulatory requirements may be resulting in excessive de-risking by insurers and pension funds and impeding the provision of longer-term forms of finance.

PRINCIPLE FIVE: OVERCOME TAX AND REGULATORY IMPEDIMENTS TO THE PROVISION OF LONG-TERM FINANCE




REC

12REVIEW THE CAUSES OF “DEBT-BIAS” AND ITS EFFECT ON FINANCIAL STABILITY AND PRO-CYCLICAL DECISION-MAKING

Undertake a comprehensive review of why companies favour funding through debt rather than equity.

EXAMPLE OF IMPLEMENTATION: LONG-TERM REPORTING GUIDANCE

Companies

Working Group to develop

guidelines

B

Investors

Institutional Voting Information Service(IVIS)

Review Annual Reports for adherence to published Long-Term reporting guidelines and to measure progress.

Evaluate

Conduct periodic reviews to assess impact and whether adjustments are needed

Consultation Education

Implementation

Review


Guidelines issued

Briefings/Blogs

Investors raise

issues

Sent to Compani

es

Direct engage

m.

Regulate

IVIS Reports Continue

Adjust

CONTACT:

Andrew Ninian, Director, Corporate Governance and Engagement - [email protected] David McCarthy, Productivity Action Plan Analyst - [email protected] 31

mailto:[email protected]


Market Abuse Regulation (“MAR”)ICSA Shares Conference 2016

James Poole, Manager, Capita Company Secretarial Services

33

Agenda

• Welcome & Introduction• Post MAR world• Brief overview of the impact of MAR• Focus on:

- Share dealing and closed periods- PDMR/ PCA transactions- Impact on share plan transactions

• Panel discussion & questions

34

The post MAR world…

3 July 2016:MAR

Brexit Political fall out

Iceland beat England

35

Brief overview: The good news

Definition of inside information remains largely the same

Potentially increased flexibility to delay disclosure

FCA confirmation that approach to ‘closed periods’ ahead of prelims can continue

36

Brief overview: The bad news

Changes to regime on dealing by PDMRs

Administrative burden increased significantly

37

Brief overview: Uncertainties

Delay in finalising implementation measures and guidance has resulted in rushed implementation

Uncertainty on guidance from regulators raises questions on the acceptability of established market practice

Relevant rules and guidance have become more dispersed and harder to locate

38

Key elements of the definition of Inside Information have not changed:

Brief overview: Inside Information and delaying disclosure

Of a precise nature

Not made public

Relating to an issuer

Significant effect on

price

Inside Information

39

Issuers can still delay disclosure subject to certain conditions:

Brief overview: Inside Information and delaying disclosure

Delayed

disclosure

permitted

Likely to prejudice legitimate interests

Not likely to mislead the public

Confidentiality

assured

40

• Standard format insider lists required; containing much more information

• Single insider list with different sections per project, possibly including a ‘permanent insiders’ section

• Uncertainty over whether advisers/ third parties continue to keep their own insider list

• Employees to acknowledge in writing that they are aware that they are on the insider list and of the connected duties and sanctions.

Brief overview: Insider lists

41

• Buyback regime stays largely the same;

• Requirements to benefit from MAR safe harbour:- Prescribed disclosures prior to trading- Notify FCA of trading information and make public disclosures;

• Safe harbour can enable trading in closed period if, for example, the programme is independently lead.

Brief overview: Share buybacks

42

Brief overview: Market soundings

• New requirements for conducting market soundings are onerous

• Obtain prior consent of the recipient and inform them when the market sounding ceases to be inside information

• Market soundings to be made on recorded lines if available

• Keep detailed electronic records of the information given and to whom for 5 years and provide to FCA on request.

43

• Model code removed from Listing Rules – most issuers expected to retain their own updated dealing code;

• Closed period: 30 calendar days before announcement of interim or year end report – or preliminary announcement;

• PDMR’s expressly prohibited from dealing during closed periods;

• PCA’s are not covered by this restriction (but caution is advisable due to insider dealing concerns and reputational issues).

Focus: Share dealing & Closed periods

44

PDMR Transactions during closed period (assuming a clearance process will be followed)

Focus: Share dealing & Closed periods

Is it a transaction?

Apply for clearance

No restrictions

Clearance refused

Does the PDMR have PSI?

Is PSI relevant to transaction?

Is it appropriate?

Is it a closed period?

Does an exemption apply?

Yes

Yes

Yes

Yes

Yes

Yes

No

No

NoNo

No

Give clearance

45

Permitted dealingsThe list of circumstances in which dealing is permitted during a closed period has been narrowed to:

• the existence of exceptional circumstances, such as severe financial difficulty; or

• transactions under an employee share scheme; or• transactions where the beneficial interest does not change.

Notifying PDMRs and their PCAs• Issuers must notify their PDMRs of their obligations in writing and

draw up a list of PDMR’s and their PCA’s.• PDMRs must notify their PCA’s in writing of disclosure obligations

and retain a copy of the notification.

Focus: Dealings by PDMRs and PCA’s

46

Notifications

Threshold for notificationsTransactions only need to be reported once a threshold of €5,000 has been reached within the calendar year by that PDMR. It is unlikely that issuers will utilise this exception for dealings by PDMRs.

Time limitDeadline for notification has been reduced from 4 to 3 business days. Issuers may wish to reduce PDMR notification in order to meet this deadline.

FCA formThe FCA has produced a new online form for notification of transactions: https://marketoversight.fca.org.uk/electronicsubmissionsystem/MaPo_PDMR_Introduction.

Focus: Dealings by PDMRs and PCA’s

https://marketoversight.fca.org.uk/electronicsubmissionsystem/MaPo_PDMR_Introduction



47

Focus: Dealings by PDMRs and PCAs

48

During closed periods:

• Acceptance of an invitation:- Is permitted as long as it does not give rise to a right to shares

(e.g. SAYE)- Is not permitted if it equates to the acceptance of an offer (e.g.

bonus election if the acceptance would occur during the closed period)

• Grant of option/ award of shares:- It is not clear whether the grant is a transaction by the PDMR- Permitted if set up in advance (conditions, timing, participants and

amounts determined outside of closed period)

Focus: Impact on share plan transactions

49

Other share transactions:

• DRIPs: permitted if entered into during an open period and no changes

• SIP monthly purchases: permitted if entered into during an open period and no changes

• Issue of shares on vesting: no issues – contractual obligation

City of London Law Society Q&Ahttp://www.citysolicitors.org.uk/attachments/category/114/Market%20Abuse%20Regulation%20EU%20MAR%2005%2007%2016.pdf


http://www.citysolicitors.org.uk/attachments/category/114/Market%20Abuse%20Regulation%20EU%20MAR%2005%2007%2016.pdf

http://www.citysolicitors.org.uk/attachments/category/114/Market%20Abuse%20Regulation%20EU%20MAR%2005%2007%2016.pdf

50

Focus: Impact on share plan transactions• Is the PDMR permitted to trade during closed periods?• Are transactions caught under the disclosure regime?

Action Trading permitted Disclosure arisingAdoption of plan ✘Amendment of plan ✘Sending out invitations ✘Accepting an invitation

Grant of option or award ✘Vesting of option or award

Exercise of option ✘

51


Action Trading permitted

Disclosure arising

SAYE Options: Invitations

Applications

Grants ✘ Exercises ✘ Sale of shares

SIPs: Invitations

Applications

(Monthly) allocations of shares

Transfers of shares to PDMR

Sale of shares

• Is the PDMR permitted to trade during closed periods?• Are transactions caught under the disclosure regime?

52

Panel discussion

Peter Swabey FCIS Director of Policy and Research, ICSAGuy Dixon Governance Consultant,

Bridgehouse Company SecretariesNilufer von Bismarck Partner, Slaughter and MayJames Poole Team Manager, Company Secretarial

Services, Capita Asset Services

53

Viviane Joynes, CFind out more

Capita offers a range of services and online resources about MAR:

www.capitaassetservices.com/MAR

54

Viviane Joynes, CContact us

James PooleTeam ManagerT: +44 (0)344 39 11 926 M: +44 (0)7736 492 773E: [email protected]

MAR: panel discussionJames Poole, Team Manager, Company Secretarial Services

Nilufer von Bismarck, Partner, Slaughter and May

Guy Dixon, Governance Consultant, Bridgehouse Company Secretaries

MAR: panel discussionDuring the panel discussion, it was suggested that a link to the ICSA guidance note on MAR addressing dealing codes and the Slaughter and May guidance on other MAR issues would be helpful.

The ICSA guidance https://www.icsa.org.uk/knowledge/resources/mar-dealing-code

Slaughter and May guidance https://www.slaughterandmay.com/media/2535170/the-new-eu-market-abuse-regulation-an-overview-for-uk-issuers.pdf

https://www.icsa.org.uk/knowledge/resources/mar-dealing-code

https://www.icsa.org.uk/knowledge/resources/mar-dealing-code

https://www.slaughterandmay.com/media/2535170/the-new-eu-market-abuse-regulation-an-overview-for-uk-issuers.pdf



Davis Polk & Wardwell London LLP is a limited liability partnership formed under the laws of the State of New York, USA, and is authorised and regulated by the Solicitors Regulation Authority with registration number 566321.

Davis Polk & Wardwell London LLP

Continuing obligations: what premium and standard listed companies need to know

Presented byWill PearcePartner, Davis Polk

July 14, 2016

59

The UK listing regime

Securities law has been harmonised across the EU – minimum and maximum harmonisation

Differences in regulatory approach remain Listing in the UK is a dual track process London Stock Exchange (market) – LSE

Admission and Disclosure Standards Official List (regulatory) – Listing Rules

Premium vs. standard segment Supervision by the FCA

Reviews and approves admission and documents

Regulates compliance with continuing obligations

Monitors market disclosures www.the-fca.org.uk/markets/ukla

Prospectus Directive, Market Abuse Regulation and Transparency Directive

Delegated regulations

ESMA guidance

Financial Services and Markets Act 2000Listing Rules, Prospectus Rules, Disclosure Guidance and Transparency Rules

UKLA guidance

http://www.the-fca.org.uk/markets/ukla

60

Communicating with the regulator

• Primary Market Bulletin• Procedural and Technical Notes• Status of guidance

Knowledge Base

61

Listing Principles Premium and standard Basis of FCA enforcement

Eligibility Premium only Eligibility requirements

additional to LR 2 Controlling shareholder

regime

Transfer, suspension and cancellation Premium and standard Reverse takeovers

Sponsor regime Premium only Obligation to consult or appoint

a sponsor Responsibilities of a sponsor

Continuing obligations Premium only Continuing compliance with

eligibility requirements Share issues Mandatory RIS

announcements Contents of Annual Report

Circulars Premium only Documents requiring FCA

approval Content requirements

Continuing obligations – listing

LR 7 LR 8

LR 9LR 6

LR 5 LR 13

62

Related party transactions Premium only Definition of related party Exempt transactions Relief for smaller transactions Shareholder approval

Class transactions Premium only Class tests Class 2 announcement Class 1 announcement,

circular and shareholder approval

Reverse takeovers Premium and standard Requirement for

suspension Avoiding suspension

Share issues Premium only Rights issues, open offers and

placings

Prospectuses Premium and standard Requirement for prospectus –

public offer or admission to trading

Content, approval and publication requirements

Advertisement regime

Share buy-backs Premium only Requirements for purchases

from related parties, purchases under 15% and purchases of 15% or more

Continuing obligations – corporate transactions

LR 11 LR 9.5

PRLR 10

LR 5.6 LR 12

63

Dealings by managers Premium and standard Regime applies to PDMRs and

CAPs No dealing in closed periods Notification obligations

Insider lists Premium and standard Must keep insider lists Prescribed form

Disclosing inside information Premium and standard Obligation to disclose

inside information Delay if in legitimate

interests

Financial reporting Premium and standard Half-Yearly Financial Report Annual Financial Report

Dealings by shareholders Premium and standard Notification obligation – 3% and

every percentage thereafter Requirement to announce total

voting rights

Corporate governance Premium and standard Requirement for audit

committee Annual corporate governance

statement

Continuing obligations – disclosure and transparency

MAR Art 19& DTR 3 DTR 4

DTR 5MAR

Art 18 &DTR 2

MARArt 17 &DTR 2

DTR 7

64

Regulatory enforcement

Lamprell fined £2.4m by FSAOil rig maker Lamprell has been fined £2.4m by the Financial Services Authority (FSA) over a “serious” failing of its internal control systems before it issued a series of profit warnings last year.

March 2013

Reckitt Benckiser fined for failing to disclose executive share dealingsThe Financial Conduct Authority found weaknesses in the company’s systems and controls between July 2005 and October 2012.

January 2015

Russian oil firm Exillon fined for failing to disclose payments to chairman Maksat Arip

Russian oil company Exillon Energy paid out nearly £1m on private jets, school fees and credit card payments for its former chairman Maksat Arip - but failed to disclose the payments.

April 2012

Nestor fined £175,000 over tradesNestor Healthcare Group, a provider of social and primary care services now part of Saga, has been fined £175,000 for allowing its directors to trade in company shares without obtaining necessary approvals from the board. The Financial Services Authority found that Nestor, listed on the London Stock Exchange until the 2010 buyout, had proper policies in place to prevent improper trading but “weak procedures allowed for this policy to be forgotten by the board”.

February 2013

Tribunal sends out warning on inside information in wake of Hannam case

Star rainmaker, Ian Hannam, found to have committed market abuse by tribunal

May 2014

Pru moves into top five of FSA penalty league with £30m fineThe regulator announced it had fined “companies in the Prudential Group £30m” for breaching its principles and the listing principles of the UK Listing Authority. The fine was broken down into £14m for Prudential plc for listing rules breaches and £16m for Prudential Assurance Company.

April 2013

FCA fines Asia Resource Minerals £4.65m for listing violations

June 2015

65

Questions?

Will PearcePartner, [email protected] T: +44 (0)20 7418 1448 M: +44 (0)7785 254 976

This presentation has been prepared for general information only: it is not intended to be exhaustive or to constitute legal advice.


Employee Share Schemes:Balancing Risk and Reward


14 July 2016

Stephen WoodhousePartner

Charlotte FleckSolicitor

www.pettfranklin.com

Employee Share Schemes

• Share plan design• Taxation of employee share plans

– Basic tax treatment and statutory share schemes– Operating an ESOT

• Malus and clawback• Reporting requirements• Market Abuse Regulation

©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 67

Employee Share Schemes

• Executive share plans– Incentivise performance– Align interests with shareholders

• Increasing criticism of option plans as focusing executives on short-term share price rather than long term value– Need to think hard at the outset about performance

targets and metrics used– How long is the long term?

• What do investors want?


Tax Treatment of Employee Share Plans

• Basic tax treatment– Income tax on upfront value or on option exercise– Capital gains tax on gain in value thereafter

• Need to make sure plan provides for operation of PAYE - any holding requirements should normally allow for sale of enough shares to cover tax– S.222 charges – what about leavers?

• Tax is a reputational risk and there is increasing concern about any planning perceived as tax avoidance


Statutory Share Plans

• CSOP– Market value share option with gain in value

above exercise price subject to CGT– £30,000 award limit

• Sharesave/SAYE– All-employee share option plan– 3 or 5 year monthly savings contract – current nil

interest rates but option may be at a discount– Employee can exercise or take out cash


Statutory Share Plans

• Share Incentive Plan– Free shares – up to £3,600 pa– Partnership Shares – up to £1,800 pa– Matching Shares – up to £1,800 pa– Dividend Shares

• Must offer to all employees on equal terms• Concern over disparity between executive pay and

lower-paid employees – do share plans have a role?• Group plans – need to be careful to track employee

eligibility


Malus and Clawback

• Essential – but need to think hard at the outset about circumstances in which operate– Negative publicity over “rewards for failure”– Discretion must be exercised reasonably and in

good faith• How can you make sure clawback is

enforceable?– Clauses should be clearly drafted and drawn to

attention of employee


Reporting requirements

• Directors’ remuneration reporting– Can this become too complex and legalistic?– Commercially sensitive information (e.g. performance targets)

should still be disclosed after the fact• Voting on remuneration policies – shareholder

expectations becoming stricter?• HMRC annual share scheme reporting

– Reporting by employees in Self Assessment returns – should share awards be reported even where all tax has been deducted under PAYE?

• Need to notify PDMR transactions to the market


Market Abuse Regulation

• MAR closed periods• Insider dealing• PDMR notification requirements

– Does not retain all Model Code exceptions for employee share plans

– Need for clear internal policies and procedures more acute than ever – can be fined for failing to notify so not an afterthought


Questions?


Contact details

David Pett [email protected] mobile: 07836 657 658

William Franklin [email protected] mobile: 07889 726767

Stephen Woodhouse [email protected] mobile: 07836 756031

Charlotte Fleck [email protected] mobile: 07703 826 321

Office: 0121 348 7878

Twitter: www.twitter.com/pettfranklinLLP

For lots of information, go to our website:www.pettfranklin.com






http://www.twitter.com/pettfranklinLLP

http://www.pettfranklin.com/

Brexit: panel discussionAndrew Ninian, Director, Corporate Governance and Engagement, The Investment Association

Will Pearce, Partner, Davis Polk & Wardwell LLP

Stephen Woodhouse, Partner, Pett, Franklin & Co. LLP

Brexit: panel discussionDuring the panel discussion, it was suggested that a link to a reminder published by

the Financial Reporting Council on 12 July, highlighting “some matters for directors to consider when preparing their forthcoming half-yearly and annual financial reports”

might be useful for delegates.

https://www.frc.org.uk/News-and-Events/FRC-Press/Press/2016/July/Reminders-for-half-yearly-and-annual-financial-rep.aspx



icsa shares conference july 2016

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