Utilising Share Incentives

With many teams working hard to support businesses during these unprecedented times, it may be worth considering what you as an employer could offer key people as extra compensation. Private health care, 24-hour GP access and pensions have become almost routine.

Equity-Based Incentives

Equity-based incentives can be a real differentiator and are especially worth thinking about in times of economic challenge when asset values are low, cash flow is strained and the need to incentivise teams to work together is most acute.

Here are five ideas:

1. Deferring cash bonuses

Existing and new cash bonus schemes can be converted to share option schemes to deliver reward in shares.

Arrangements such as employee trusts can be a way to cash out shares in the future but there are alternatives to provide liquidity.

2. Rebasing "underwater" options

With share prices falling, the cost of existing share option awards may be higher than the value of the shares involved. Where options are underwater and have no value, there are different ways to rebase option exercise prices and restore the incentive effect.

3. Re-aligning profit-based performance conditions

Where existing awards are based on hitting sales or profit targets, these could be changed to conditions which are better aligned to successfully negotiating the crisis.

4. Extending the life of share options

Many options will have a 10-year term. If the end of the term coincides with a temporary downturn in trading conditions, options could be varied or replaced to extend their life.

5. Crystallising existing share options

Where share option awards have met their performance conditions so are already free to be exercised, staff could be encouraged to exercise, for example by way of a temporary employer loan.

This will allow the employer to claim a corporation tax deduction for the option gain which will reduce its cash outflow at nil cost.

Please note that the above options do not include the tax impact. if you need advice on the taxation side of share incentive transactions, please contact our tax team .

Get in touch

These are just a few ideas on how to use share incentives in tough times. We would be happy to discuss how these, or other ideas might help in your business. Please do not hesitate to contact us using the form below today.

Your personal data is collected by Mazars in South Africa, the data controller, in accordance with applicable laws and regulations. Fields marked with an asterisk are required. If any required field is left blank, it will not be possible to process your request. Your personal data is collected for the purpose of processing your request.

You have a right to access, correct and erase your data, and a right to object to or limit the processing of your data. You also have a right to data portability and the right to provide guidance on what happens to your data after your death. Finally, you have the right to lodge a complaint with a supervisory authority and a right not to be the subject of a decision based exclusively on automated processing, including profiling, that produces legal effects concerning you or significantly affects you in a similar way.

Want to know more?

Related Contact