rm2 workshop presentation revised 25 05 11

Mastering Employee Share Schemes

Thursday 25th May 2011

benefitsmethods

about RM2

Benefits

• boosts share values by aligning interests of participant and company

• striking tax advantages• succession planning opportunities• linkage to wealth management

Boosting share values

• share price performance• productivity• gross value added• qualitative evidence

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

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

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

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%)

EMI tax treatment

• No tax on grant• Any discount to MV is IT on exercise• Otherwise CGT

• Beware : Entrepreneurs’ Relief : Disqualifying events

Share Incentive Plan – 0% tax…

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

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?

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.

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

complete solutions

scheme design documentation trustee services share capital structure valuation resolutions and minutes employee presentations administration, compliance

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

The RM2 Partnership Ltdwww.rm2.co.uk0800 043 81500208 949 5522

Questions?