The price at which an option holder has the right to buy or sell the underlying asset. Also known as the strike price.
Executive compensation and employee benefits—USA—Q&A guide This Practice Note contains a jurisdiction-specific Q&A guide to executive compensation and employee benefits in USA published as part of the Lexology Getting the Deal Through series by Law Business Research (published: January 2022). Authors: Mayer Brown—Maureen J. Gorman; Debra Hoffman 1. Provide an overview of the primary sources of law, regulation and practice that govern or affect executive compensation arrangements or employee benefits. In the United States, broad-based employee benefit programmes are generally subject only to federal laws while executive compensation arrangements are, in most cases, subject to various federal and state laws. In the case of both employee benefit plans and executive compensation arrangements, the applicable laws affect their structure, taxation, governance and public disclosure. Federal law At federal level, applicable laws include the following: • the Internal Revenue Code (Code), and in many cases, the Employee Retirement Income Security Act of 1974 (ERISA); • the Securities Act of 1933 (Securities Act); • the Securities Exchange Act of 1934 (Exchange Act); • the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank); and • the Sarbanes–Oxley Act (SOX). The Code prescribes rules governing: • the amount and timing of the inclusion in income by an employee of executive compensation and other types of employee benefits, and the amount and timing of the corresponding employer deduction, if any; and • the imposition of employment taxes in connection with such arrangements. As might be
What is a long-term incentive plan? A long-term incentive plan (LTIP) is a term that is commonly used among listed companies to describe executive share plans under which a company makes share based awards to senior employees with a vesting period of at least three years. To meet institutional shareholder voting requirements (where shareholder approval is required), awards are usually made subject to the achievement of specified performance targets. Where the LTIP has stringent performance conditions, companies sometimes call their LTIP a performance share plan (PSP). Another name for an LTIP that has been used commonly in the past is a restricted share plan. For companies listed on the London Stock Exchange, there is a specific definition of long-term incentive scheme in the Financial Conduct Authority (FCA) handbook. See Specific definitions below. The term LTIP is sometimes used in a broader context to describe any incentive arrangement, including cash bonus schemes, operating over more than one year. The meaning within the broader context should not be confused with the meaning of an LTIP used more generically to describe share incentive arrangements usually targeted at senior executives of listed companies and detailed in this Practice Note. Forms of awards under an LTIP The LTIP became the predominant vehicle for the making of longer term executive share incentive awards to FTSE 100 and 250 companies, and effectively replaced executive option plans (under which
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EMI share options term sheet [INSERT NAME OF COMPANY] EMI SHARE OPtions This term sheet summarises a proposal to incentivise key employees of [insert name of company] (referred to below as the ‘Company’) by granting those employees statutory tax advantaged enterprise management incentives (EMI) share options over shares in the Company (EMI Options). All issues raised in this document are for discussion purposes and each should be considered carefully before implementation. 1 Overview The EMI scheme is a highly flexible and tax-efficient share option scheme designed specifically for small/medium-sized businesses. EMI schemes are one of the most popular of the share option schemes available to companies. EMI Options must be granted for commercial reasons in order to recruit or retain an employee in a company, and not as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax. Under the terms of the proposal, participants will be granted EMI share options with an exercise price determined at the date of grant. An EMI scheme is discretionary. This means that the company can choose which employees receive options and how much each of them gets. EMI share options will be non-transferrable except in the event of the death of the option holder. The tax treatment of the EMI option holder will depend on the exercise price of the EMI Option and
LTIP — notice of exercise of option The Company Secretary [insert date] [insert name of company that granted the option] (Company) [[insert address of company that granted the option]] Form of notice of exercise From: [insert name of option holder] 1 Exercise of the Option I refer to the option granted to me on [insert date on which the share option was originally granted] over [insert class and nominal value of shares under option] shares in the Company (Shares) under the terms of the [insert name of LTIP under which option was granted] (Plan) (Option), and hereby give notice that I am exercising the Option in respect of [insert number of shares being exercised] Shares at the exercise price of £[insert exercise price per share as in the original grant documentation] per Share (Option Price) and request the allotment or transfer to me of those Shares in accordance with the Plan and the Memorandum and Articles of Association of the Company. I request that you place my name on the register of members in respect of those Shares and I hereby confirm that the above exercise is subject to the remainder of this Notice. 2 Terms of Option I acknowledge and agree that the following apply in relation to the Shares under the Option: 2.1 Holding Period: After the exercise of the Option in respect of the
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Is the grant of a nominal value share option by a listed company to a non-executive director unlawful financial assistance? Although the courts have held that the Companies Act 2006 (CA 2006) does not give a technical definition of ‘financial assistance’, CA 2006 does provide examples of the types of transactions which constitute financial assistance. Looking at these, we consider it unlikely that there is any financial assistance in the given scenario. In regard to the point of whether the grant of an option to a non-executive director (NED) on this basis could fall within CA 2006, s 677(1)(a) as a gift, at least to the extent of the difference between the shares’ nominal value and their market value, it could be argued that a distinction needs to be made between where the shares being used to satisfy the option are being issued by the company and where the shares are being purchased in the market. Shares can be issued at any price, as long as they are not issued for less than nominal value (a company should not issue shares at a discount, CA 2006, ss 580, 588). The
Can a share option over newly issued shares still be an enterprise management incentives (EMI) qualifying option if a cashless exercise facility will apply to it? The use of a cashless exercise facility in conjunction with an enterprise management incentives (EMI) option must be structured with care, as the legislation governing EMI schemes requires that, at the time that the option is granted, the option must confer a right to acquire shares that are fully paid up (under paragraph 35, Schedule 5, Part 5 to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)). HMRC guidance on EMI schemes does not give details of the intended meaning of fully paid up, but HMRC’s guidance in relation to tax advantaged share incentive plans (SIPs) states that at least the shares’ nominal value must be added to the capital of the company when the shares are issued, and that this capital amount will normally have been paid by the subscriber. Importantly, ITEPA 2003, Sch 5 Pt 5, para 35(2) also stipulates that shares are not fully paid up for EMI purposes if there is any undertaking to pay cash to the relevant company at a future date. It therefore appears to be the case that, at
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This week's edition of Share Incentives weekly highlights includes (1) analysis on CEO remuneration and (2) publication of the OTS’s report on tax year end dates.
This week’s edition of Share Incentives highlights includes a focus on executive remuneration in the run-up to the AGM season.
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