The following Share Incentives practice note produced in partnership with Jeremy Edwards of Baker McKenzie provides comprehensive and up to date legal information covering:
Different types of awards can be granted under a long-term incentive plan (LTIP) and more than one may be offered under the same plan.
The types of awards that are most commonly granted, include:
conditional share awards (or restricted stock units)
forfeitable shares (sometimes, referred to as restricted shares), and
stock appreciation rights
A conditional share award, also called a restricted stock unit (RSU), is a promise to grant shares subject to the attainment of a period of service and/or performance conditions. The employee does not usually pay any monetary consideration to receive the shares, but must complete the relevant vesting criteria after which the vested shares are unilaterally transferred to the award holder.
A share option is a right to acquire shares in the company at a set exercise price at some point in the future. This can be after a service requirement and/or performance conditions are met.
Share options awarded under an LTIP are often granted at nil-cost or nominal value, ie the exercise price is set at zero or at the nominal value of the shares under the option. Referred to as ‘nil-cost options’ or ‘nominal value’ options, these options are granted to employees (as an alternative to conditional share awards), as the options will give more flexibility as to when the employees acquire
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