EMPLOYEE SHARE INCENTIVES IN AIM COMPANIES
Introduction
Employee share incentives can be a good way for any company to
attract, retain, motivate and remunerate employees and directors.
Employee share incentives enable companies to reward employees in a
manner which can be cost and tax-efficient and which aligns the
interests of the participants with those of the company's
shareholders. The Pinsent Masons employee share plans team advises
all types of company on the design, implementation and operation of
their employee share incentive arrangements and has considerable
experience of advising companies on the employee share incentive
issues that can arise as part of the AIM admission process or
subsequently.
Share incentives used by AIM companies
There are a wide range of share plans available to an AIM
company. In our experience, in selecting and designing share plans
AIM companies should consider the following goals:
- Keep it simple: the aim is share plans that participants
understand and that shareholders feel comfortable with.
- Keep it flexible: the share plans should be flexible enough to
take account of the company's development, allowing different types
of awards and the ability to reward different goals.
- Seek to maximise tax savings: AIM companies should have a
serious look at whether HMRC tax advantaged plans can be used.
What plans are available?
The types of plans AIM companies can use include:
- tax approved "discretionary" share option plans under which,
subject to satisfaction of the relevant requirements, options
granted to selected UK resident employees may be exercised in a
manner which is tax efficient for the employee and the
company;
- plans which deliver the whole value of shares, such as deferred
share award plans (often called long term incentive plans or
performance share plans) and co-investment plans;
- plans which deliver the growth in value of shares, such as
options or a more tax advantageous arrangement such as the Pinsent
Masons "ExSOP"TM
Further details on these arrangements and Pinsent Masons' share
plan expertise can be found at the following link:
http://www.pinsentmasons.com/en/expertise/services/tax/employee-share-plans/
Existing employee share incentive
arrangements
Before an admission structure (and any associated corporate
reorganisation) is finalised, its impact on existing employee share
incentive arrangements and employee shareholdings should be
considered. For example, does any relevant event trigger the
vesting of options or awards or result in the tax treatment of
existing arrangements being prejudiced? What alternatives are
available to avoid or mitigate any undesired results?
It is likely that where a company has operated employee share
plans before admission, those arrangements will not be appropriate
for the company post-admission. For example, plans which vest only
on an "exit" are unlikely to meet participants' expectations
following admission and investors may also have expectations in
relation to the structure of plans going forward (see further
below).
Shareholder approval and share plan design
AIM companies do not need shareholder approval to establish
employee share plans. However, companies should bear in mind that
arrangements will need to be disclosed in the AIM admission
document. Following admission, companies will need to consider,
along with their advisers, whether to seek shareholder approval for
new arrangements as a "best practice" point or whether to discuss
them informally in advance with key shareholders.
Generally UK institutional investors tend to give AIM companies
some flexibility in the application of "best practice" guidelines
for shares plans (such as the guidelines issued by the Association
of British Insurers). However compliance with at least some
requirements of the guidelines is likely to be expected by
investors and plans should be designed with this in mind.
On-going operation of share plans
Following admission to AIM, the way in which a company operates
its employee share plans may change. For example, the AIM rules
will limit the periods when awards can be made and grants to
directors will need to be disclosed to the market. The main
advantage of admission from a share plans angle will be that
admission should give employees an opportunity to realise value
from shares (subject to liquidity and lock-in arrangements) without
the company needing to operate an "internal market" or the employee
needing to wait until an "exit".
