With over 40 years of experience, and providing services to 250 companies across Asia, we are committed to sharing insights into many aspects of share plans. Our experts will answer your questions, from multi-jurisdictional share plan management, financial reporting, trust set-up and management and more.
Computershare Plan Managers Asia
What is the difference between a Share Option Scheme and Share Award Scheme?
When it comes to non-contributory employee share plans, there are two main options. Share Option Schemes (SOS) and Share Award Schemes (SAS).
Share Option Scheme (SOS):
Participants are granted the right to purchase a certain number of shares at a pre-determined price and conditions within a certain period in the future.
Share Award Scheme (SAS):
Shares are assigned to the participant on the grant date, but the sale or transfer of shares is “restricted” or subject to vesting criteria.
One of the key differences between these two types of schemes is the point in time that participants can access their shares. With a share option scheme, participants can access their shares after exercising them once vesting conditions are met, and for those in a share award scheme, participants should wait until vesting has occurred prior to gaining access.
When it comes to overarching benefits, Share Award Schemes often serve as the most appealing share incentive tool for attracting and retaining employees, as well as reducing the likelihood of share dilution. Whereas Share Option Schemes can be a more cost-effective approach for companies, reducing administration costs and not requiring immediate cash flow.
The table below provides a summary of the key differences and considerations.
|Share Option Schemes (SOS)||Share Award Scheme (SAS)|
If you would like more information about either of these share schemes, please reach out to our team.
What is an employee share plan trust?
An employee share plan trust is a trust set up between the Company and the Independent Trustee for the purpose of acquiring and safekeeping of the Company’s shares, under an employee share plan.
Established through the execution of a Trust Deed between a company and an independent trustee, a trust arrangement requires an initial settlement of funds into the trust to occur. The company can further contribute to the trust, so that the independent trustee can acquire the company’s shares on market to satisfy future vestings of share awards granted to employees (i.e. beneficiaries). Alternatively, the company may also issue new shares to be held by the Trust during the vesting period.
Why use an employee share plan trust?
For more information, read our article — Understanding employee share plan trusts.
How can company "insiders" trade during the blackout period in the US market, given SEC restrictions?
It is common for corporate executives to use a 10b5-1 plan to ensure adherence to insider trading laws and to avoid any chance of accusations of insider trading in the US market.
A 10b5‐1 plan is a written plan for trading securities that is designed in accordance with Rule 10b5‐1 of the Securities Exchange Act of 1934 (the “Exchange Act”) in US, which allows insiders of a listed company to sell a pre-determined number of shares at a pre-determined time in accordance with insider trading laws.
In the trading plan, the price, trading amount, and sales dates must be specified in advance and determined by a formula or metrics. When making the sale plan, the seller must not have access to any material non-public information, e.g. during window-open period.
The following are a few key benefits of having a 10b5-1 plan:
An affirmative defense to insider trading allegations for persons trading pursuant to the plan
More opportunities for insiders to sell their shares, especially during a blackout period and greater certainty in planning the transactions
Potentially less negative news associated with insider sales
Less burden on legal counsel or compliance officers who would otherwise have to make subjective determinations about the availability or possession of material non‐public information each time an insider seeks to buy or sell shares
For more information, reach out to our team today.
At what stage and scale of company development do Employee Stock Ownership Plans (ESOP) become appropriate?
There are no general rules or restrictions as to when your company should choose to implement share incentives. Every company will have different goals and size of employee population depending on what stage of development they are in. This will therefore drive the type of share plan that is most suitable for them.
An Employee Share Ownership Plan (ESOP) is a supplementary form of corporate compensation that provides additional benefits to employees through financial instruments such as Share Options Schemes (SOS). An ESOP can help unlock an effectiveness that traditional salary reward mechanisms do not offer, by utilising various financial instruments in the capital markets to amplify the benefits.
Based on our experience, here is what we have seen across the market:
- Companies in the early stages of development, especially in high-growth industries such as I.T., high-tech and biomedicine will be reliant on the creative value of employees to drive the establishment, development, and maturity of their corporate business model. In these high growth industries, SOS are more common as they help to retain and motivate employees and ensure employee contributions are closely linked to the growth of the company.
- Companies in the post-IPO stage, will most likely have a mature and stable business model, therefore it is more common to see these companies choosing Restricted Stock Units (RSU) due to their relatively stable returns. However, if for some reason any market fluctuations occur or the stock price is undervalued, your company may consider returning to SOS to balance financial costs.
- Mature companies with a sizeable employee population will typically implement executive share plans, as well as a share plan for their broader employee base. The Employee Share Purchase Plan (ESPP) is an emerging incentive tool that is growing in popularity across Asia. It encourages employee ownership and is often used as a key retention tool.
To design the most appropriate and effective share plan, companies should work with an accredited, professional share plan provider to design, implement, and manage their ESOP. For more information, reach out to our team today.
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