Upload
oslo-business-region
View
49
Download
2
Embed Size (px)
Citation preview
INCENTIVE SCHEMES
2. september 2016
Daniel L. Høgtun
Advokatfirmaet Selmer DA Doc. ref.: 901595 2
Shares and options – The two dimensions
Two dimensions: Employer and employee
1.Why does the company wants to compensate the employee with shares and /or options?
• Attract or retain key employees
• Cash management
• Align employees with the company (economically and emotionally)
2.Why does employees want to obtain or buy shares and / or options in the Company?
• Higher salary
• Greater upside
• Take part in building their "own" company
Advokatfirmaet Selmer DA Doc. ref.: 901595 3
Generally about incentive schemes in Norway
What arrangements are there?−Purchase or granting of shares−Granting of share options (subscription rights, warrants, options)−Cash bonus (bonus, synthetic shares)
Who should be included in the scheme?−Management and selected employees, or a wider/general arrangement?−Several different schemes?
On what basis?−Revenue, profit, EBITDA and other economic variables−Work effort, hours−Innovation, milestones−Customer satisfaction−Pure discretion−Company level, department level, individually?
Combinations
Advokatfirmaet Selmer DA
EMPLOYEE EMPLOYER
4
Risk, financing and tax - different models
Options∙ Low or no risk of loss until after exercise∙ Low or no financing for employees until exercise∙ Employment income on the option gain (up to
approximately 47%)
Shares∙ Investment and risk of loss∙ Financing necessary∙ Favourable taxation of gains (capital not employment
income)∙ Discount from FMV considered as employment income
Options∙ Does not charge the company's liquidity (dilution) if
shares are issued∙ Tax deduction equal to gain if the company has or obtains
shares that are awarded to the employees∙ Employers' national insurance contribution on the gain
Shares∙ No financing for the company∙ Tax deduction on discount if the company has or obtains
shares that are awarded to the employees∙ Employers' national insurance contribution on any discount
from FMV at the time of acquisition
Doc. ref.: 2185942
Bonus∙ No downside for employees∙ No financing for employees∙ Employment income (up to approximately 47%)
Bonus∙ Must be financed by the company – charges the liquidity∙ Employers' national insurance contribution and holiday
pay∙ Deduction for the cost
Advokatfirmaet Selmer DA Doc. ref.: 2901595 5
Some important considerations
∙What type of program? − Shares have an additional incentive through risk− The value of the company is important
− Early stage / low value (shares)− Late stage / high value (shares and/or options)
∙Strategy / exit− The program should be aligned with the company's
strategy∙The economics of the program
− What shall give entitlement to shares/options (result, days etc.)
− Number of shares that can be purchased / subscribed for− What price (discount, FMV etc.)
∙Timing− Ongoing, permanent or periodical models− Situational exercise (milestones)− Flexible exercise?
∙Financing
− Consider both the need for financing and the costs of the program (for shareholders. company and employees)
∙Dilution / control
− Consider effects
− Set limitations
− Different types of shares (e.g. limited voting rights)∙Lock up etc.∙Sales restrictions (potential tax effects)∙Good leaver / bad leaver∙Exercise restrictions
∙Ownership
− Through a personal holding company?
− Must be controlled by employee?