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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.

If you would like more information about either of these share schemes, please reach out to our team.

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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.

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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.

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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:

1. 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.
2. 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.
3. 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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