Making Executive bonus plans more effective

Making Executive bonus plans more effective
On 11 June 2018, MM&K hosted one of its regular dinners for Company Chairman, Non-executive Directors and Chief Executives. The topic for discussion at the dinner was “making executive bonus plans more effective”. A note of the discussion (which was held under the Chatham House Rule) can be accessed here.
In preparation for the dinner, MM&K produced some original research into bonus plan design practice. A copy of the report can be obtained by writing to margarita.skripina@mm-k.com

Reporting the pay difference between Chief Executive and staff

Reporting the pay difference between Chief Executive and staff
It was announced today by the Department of Business, Energy and Industrial Strategy (BEIS) that legislation would be laid before Parliament which states that larger UK Listed companies (with more than 250 employees) be required to publish annually the pay difference between the Chief Executive and staff, including an explanation of this difference.
To read the full press release by BEIS click here

Malus and LTIP awards

Malus and LTIP awards
The UK Corporate Governance Code states that long-term incentive plans (LTIPs) must include provisions to enable the company to withhold payments to participants in specified circumstances. It is now common for LTIP Rules to allow the Remuneration Committee to apply these ‘malus’ provisions and also to ‘claw back’ the benefit of awards which have already vested and been paid to the participants. The circumstances may include misconduct of the participant, misstatement of the company’s results and situations which have caused reputational damage to the company.
In a recent case (Daniels v Lloyds Bank Plc), the High Court decided that a new malus clause, added to LTIP Rules, could not apply to awards which had already been granted before the amendment was made. The court also concluded that the Board of Directors could not decide that no shares should be delivered to the participants at all after the Remuneration Committee had determined the level of vesting. This ruling was based on the actual circumstances and may not be applicable to other plans. However, companies will need to ensure that malus and clawback provisions are carefully worded and that proper processes are used if they are ever applied.

Share plan annual returns deadline

Share plan annual returns deadline
Annual share plan returns for the tax year ended 5 April 2018 must be submitted online to HMRC no later than 6 July 2018. Returns must be made for the tax-advantaged share plans – SIP, SAYE, CSOP and EMI – and also for unapproved share plans. Items to be reported include grants of share options and conditional share awards, acquisition of shares by employees and any other taxable events. In addition, if any amendments have been made during the tax year to key features of SIP, SAYE or CSOP plans, the company must confirm that the plans continue to comply with the relevant legislation.
Please note that, even if there are no reportable events, a nil return must still be submitted. HMRC has reported that, for the 2016-17 tax year, more than 7,000 companies had to pay penalties for missing the deadline.

SAYE permitted missed contributions extended from six to 12

SAYE permitted missed contributions extended from six to 12
The regulations for Save-As-You-Earn/Sharesave share option schemes allow employees to miss up to six monthly contributions. These contributions can be made up in later months and the bonus date, when options become exercisable, is delayed accordingly. From 1 September 2018, this maximum ‘savings holiday’ is to be extended to 12 monthly contributions. The new provision will apply to all SAYE option holders, not just those who may be on special leave; but an amendment to the scheme Rules will be required in some cases.

GDPR and share plans – update

GDPR and share plans – update
As you will be aware from the numerous emails you have received on the subject, the EU General Data Protection Regulation (GDPR) came into effect on 25 May 2018. The Directive has consequences for how data about employees are handled by companies and their agents. One implication which has not been widely publicised is that amendments may be needed to data protection provisions in Employee Share Plan Rules and other documents. Click here for more details.

EMI tax relief extended

EMI tax relief extended
Enterprise Management Incentives (EMI) are tax-advantaged arrangements for granting share options to employees of smaller companies, with gross assets of no more than £30 million and fewer than 250 employees. European Union (EU) State Aid approval for EMI expired on 6 April 2018 and there was concern that income tax and NICs relief for EMI options would not be available for a period. However, the European Commission decided on 15 May 2018 that it would not object to the extension of tax relief for EMI. This approval applies until 6 April 2023 or, if earlier, when the UK ceases to be a member of the EU.

The Evolution of the Remuneration Committee: proposed changes to the UK Corporate Governance Code and recent changes to the QCA Corporate Governance Code

The Evolution of the Remuneration Committee: proposed changes to the UK Corporate Governance Code and recent changes to the QCA Corporate Governance Code
The Impact of the FRC’s proposed changes to the UK Code was the theme for the recent Remuneration Dinner held by MM&K – the latest in its series of dinners for CEOs and Non-Executive Directors. To read an overview of the evening click here. The final Code will be published in “early summer”.

The text of MM&K’s response to the FRC consultation on its proposed changes can be found here.

The Quoted Companies Alliance (QCA), has also been revising its Code. The new edition was published on 25th April. The existence of the two codes is particular relevant to AIM listed companies – under a new AIM rule, AIM companies have to declare on their website, by 28 September, which “recognised” corporate governance code they apply and to what extent, with reasons for departure. In practice the UK Code and the QCA Code are only codes emanating from the UK which could be described as “recognised”.
The new QCA code is radically changed. There is strong emphasis on the culture and values of the company; the number of Principles has been reduced to 10 from 12. Emphasis is particularly on explaining, through the annual report or the website, how the company applies the principles.
For more information regarding the new code please contact damien.knight@mm-k.com

Grant of EMI Option: current status

Grant of EMI Option: current status
In the ERS Bulletin #27 published on 4 April 2018, HMRC had stated that following the expiration of the EU State Aid approval for Enterprise Management Incentives (“EMI”) on 6 April 2018, EMI options granted in the period from 7 April 2018 until EU State Aid approval is received may not be eligible for the tax advantages associated with EMI options and instead may be treated as unapproved options. Accordingly, HMRC had advised that companies may wish to delay the grant of EMI options until fresh EU State Aid approval has been given.

As HM Treasury officials continue to work with the Commission for obtaining the fresh EU State Aid approval, current indications are that the process is likely to take a few weeks. In the meantime, it is ‘business as usual’ so far as HMRC is concerned in respect of advance assurance applications and valuation of shares in respect of the grant of EMI options. If however you really have a need to grant EMI options in the short term, please contact us and we may be able to provide some useful suggestions.

For further information contact:
nigel.mills@mm-k.com or mike.landon@mm-k.com