GLOBAL EQUITY ORGANISATION Approved Share Options

1
GLOBAL EQUITY ORGANISATIONApproved Share
Options where to next?

• Rosaleen Boyle, PricewaterhouseCoopers
• 7 January 2003

Pwc
2
Outline of Talk

• Overview of FA2001- Approved Share Option Rules
• Difficulties in application
• Challenges for the Future
• Other recent developments in employee share plans

PricewaterhouseCoopers
Global Equity Organisation
3
Share Option Rules

• Overview of Finance Act 2001

Pwc
4
Approved Share Option Schemes

• Options for all employees on similar terms
• 3 year holding requirement from grant to sale
• No discount on option price
• Favourable tax treatment
• Group scheme/individual company scheme
• Other features 30 key employee rule new hires

PricewaterhouseCoopers
Global Equity Organisation
5
Tax Treatment

• Income Tax
• No tax at either Grant or Exercise
• Capital Gains Tax CGT
• On Sales Proceeds less Exercise Price
• Indexation from date of exercise
• 20 tax rate
• Corporate Tax
• Set up costs deductible

PricewaterhouseCoopers
Global Equity Organisation
6
Difficulties in Application
Pwc
7
Lobby Group

• Unified Approach IPSA/ISA ? IBEC
• Survey of Members
• Extensive Consultation
• Meetings/Discussions with Finance/Revenue

Global Equity Organisation
PricewaterhouseCoopers
8
Primary Issues Identified

• Similar Terms what is included
• Eligibility who is included
• Housekeeping Issues practical application

PricewaterhouseCoopers
Global Equity Organisation
9
Similar Terms
APSS Approach

• Remuneration basic or total ?
• Grading, promotion, role value ?
• Perfomance related ?
• Same day/same price

PricewaterhouseCoopers
Global Equity Organisation
10
Eligibility
APSS Approach

• Temporary/contract workers ?
• Participation rather than eligibility
• Discretion problematic

PricewaterhouseCoopers
Global Equity Organisation
11
Housekeeping Issues

• Grants on anniversary of hire ?
• Application of discretion
• Need for Audit certificates
• Uncertainty of approval process and cost

PricewaterhouseCoopers
Global Equity Organisation
12
Trends

• Multi-Nationals in Ireland
• stepped vesting
• grants to All Employees
• Irish/UK Companies
• cliff vesting typically after 3 years
• subject to performance conditions
• aimed at key employees
• Private companies ?

PricewaterhouseCoopers
Global Equity Organisation
13
Facts

• Only 15 schemes approved to date
• Most companies with existing schemes fail to
  meet the
• rigid requirements
• Not commercially attractive to companies

PricewaterhouseCoopers
Global Equity Organisation
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Output

• Educational Process
• Draft Guidelines prepared and put forward
• Housekeeping issues identified and proposals
  made
• Detailed legislative proposals presented
• Willingness to resolve issues

PricewaterhouseCoopers
Global Equity Organisation
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Result

• No changes in Finance Act 2002
• Hugely Disappointing
• to IPSA
• to companies involved
• for the team
• No announcements in Budget 2002. Finance Bill?

PricewaterhouseCoopers
Global Equity Organisation
16
Challenges For the Future
Pwc
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Next steps

• Minister of Finance willing to review fresh
  proposals
• No guarantees
• Lobby groups preparing new proposals IPSA,
  ICT Ireland
• - clean sheet approach
• - international comparisons
• - draft model

PricewaterhouseCoopers
Global Equity Organisation
18
Working with existing legislation

• Pre 1992 Options - History
• Retrospective Approval No longer possible
• Approval only impacts on future grants
• Will SAYE meet your all-employee needs?
• Do you have an APSS?
• Is policy determined locally or at corporate
  level ?

PricewaterhouseCoopers
Global Equity Organisation
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What can companies do?

• Green field Approach
• - tail wagging the dog ?
• Carve out from existing scheme
• - need to disapply certain provisions
• - include other provisions
• Approved/Unapproved
• Need Approval in Advance
• Push the Envelope

PricewaterhouseCoopers
Global Equity Organisation
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Existing Share Option Schemes

• Rule changes will be required
• Does existing scheme make provision ?
• Board approval ?
• Revenue approval

PricewaterhouseCoopers
Global Equity Organisation
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New Share Option Schemes

• Approval at general meeting
• IAIM guidelines
• Revenue approval

PricewaterhouseCoopers
Global Equity Organisation
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Other Tax and Legal Issues
Pwc
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Finance Act 2002

• No changes to Finance Act 2001
• Filing date for Form SO2 now 31 March
• - For 2001, SO2 due by 30 June 2002
• - For 2002, SO2 due by 31 March 2003, etc.
• SO2 reporting requirement extended to Irish
  branches/agencies
• - previously, applied only to employees of
  resident company

Global Equity Organisation
PricewaterhouseCoopers
24
Unapproved Share Option Schemes- Deferral of
Income Tax

• Tax still applies to year of exercise
• Only defer collection
• until earlier of 7 Years or Sale
• timely election essential
• Identification of shares is an issue
• Benefit flows through for preliminary tax

PricewaterhouseCoopers
Global Equity Organisation
25
Restricted Share Schemes

• Restrictions on sale reduce taxable value and
  thus overall tax bill
• Range from 10 reduction for 1 year restriction
  to 50 reduction for
• 5 years, and 55 reduction for restriction of
  over 5 years
• Limits on early release provisions
• Agreement of Inspector required
• Improvements needed

PricewaterhouseCoopers
Global Equity Organisation
26
APSS Salary Foregone

• New Revenue Guidelines - Dec 2001
• Cannot straddle tax years in collection
• Salary foregone in 2001 can be used towards 2002
  purchases
• Affects appropriations from 1 Jan 2003
• NB for cos with awards in Jan-Mar
• Action required now

PricewaterhouseCoopers
Global Equity Organisation
27
APSS Salary Foregone

• If your company is affected, 4 choices
• Move appropriation date to later in 2003
• Suggest that employees plan now for all s/f to
  come from
• Jan/Feb 2003 payroll
• Do nothing
• Revenue solution
• Jan/Feb -award employer element
• Feb-Nov forego salary appropriate that
  element only
• in Nov/Dec 2003

PricewaterhouseCoopers
Global Equity Organisation
28
UK Share Scheme Issues

• Profit Sharing Schemes abolished in UK on 31 Dec
  2002 (replaced by SIP)
• Statutory corporate tax deduction in UK proposed
  for options

PricewaterhouseCoopers
Global Equity Organisation
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Recent Developments

• Data Protection
• Part Time workers
• EU prospectus provisions

Global Equity Organisation
PricewaterhouseCoopers
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Recent Developments
Data Protection

• EC data protection regulations came into force
  on 1 April 2002
• Will allow transfer of data outside the EEA only
  where adequate data
• protection is deemed to exist

Global Equity Organisation
PricewaterhouseCoopers
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Recent Developments
Part Time Work Act 2001

• New Irish legislation 20 December 2001
• Any grading or allocation system could be viewed
  as discriminatory

Global Equity Organisation
PricewaterhouseCoopers
32
Recent Developments
EU Prospectus Provisions

• Companies Act 1963 - general requirement
• Exemption for Irish companies in respect of
  employee share plans
• Less clear for foreign companies
• EU draft directive in circulation
• - Wholesale exemption for employee share plans
  rejected
• Current climate seeks openness Enron etc

Global Equity Organisation
PricewaterhouseCoopers
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Q A
Pwc