Global Incentive Plans Breakfast SeminarMarch 2016
Agenda
Introduction and welcome
Mitul Shah
2015 Global Share Plan Survey Highlights
Laura Spurr
A look at China
Mitul Shah and David Luo
Global Reward Updates
Katie Stephens
Closing
Mitul Shah
2
Introduction and welcome Mitul Shah
3
2015 Global Share Plan SurveyHighlights Laura Spurr
2015 ParticipantsDemographics
• 177 companies operating a total of 436 equity plans, consisting of:
• 274 executive plans
• 162 broad-based plans
• Companies are headquartered in the following locations:
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• Australia• Belgium• Bermuda• Brazil• Canada• Denmark• Finland• Germany• Hong Kong
• Hungary• Iceland• Ireland• Luxembourg• Malaysia• Netherlands• Papua New
Guinea• Russia
• Singapore• South Africa• Spain• Sweden• Switzerland• UK• US
[PERCENTAGE]
[PERCENTAGE]
[PERCENTAGE]
[PERCENTAGE][PERCENTAGE]
[PERCENTAGE]
[PERCENTAGE]
[PERCENTAGE]
1%
[PERCENTAGE]
Industry
Consumer Goods
IndustrialsHealthcare
Oil and Gas
Consumer ad Business Services
Media
Property
Other
Finance
Technology and Communications
2015 ParticipantsRespondent profile
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23%
34%
25%
8%
10%
Number of employees
Less than 5,000
5,000 – 20,000
20,001 – 50,000
50,001 – 100,000
More than 100,000
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Other
Expand the culture of ownership in the group
Be competitive in the market
Provide corporate / group identity
Drive performance
Key trends around operation of share plansThe main drivers for operating global share plans
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Other
Expand the culture of ownership in the group
Be competitive in the market
Provide corporate / group identity
Drive performance20142015
Executive plans
Broad-based plans
Key trends around operation of share plansThe positive impact of global share plans
8 GSP Seminar – Spring update
0%
5%
10%
15%
20%
25%
30%
35%
40%
Drivingperformance
Providingcorporate/group
identity
Being competitivein the market
Expandingemployee share
ownership
Very much so Quite a lot Somewhat Very little Not at all Don't know
0%
5%
10%
15%
20%
25%
30%
35%
40%
Drivingperformance
Providingcorporate/group
identity
Being competitivein the market
Expandingemployee share
ownership
Executive plans
Broad-based plans
Key trends around types of share plansWhat type of plans are companies operating?
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36%
17%
25%
6%
42%
16%
21%
4%
Share purchase plans
Share option plans
Share award plans
Bonus deferral plans
8%
32%
64%
26%
4%
38%
72%
24%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Share purchase plans
Share option plans
Share award plans
Bonus deferral plans
2014
2015
Executive plans
Broad-based plans
Key features of share plansShare purchase plans
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100%
32%25%
36%
64%
68% 45%
100%
5% 7%
18%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
United States United Kingdom Europe (excl. UK) Asia Pacific Rest of world
Share purchase plan at a discount Share purchase plan with a match Combination of both
Key features of share plansShare option plans – are they structured as Stock Appreciation Rights?
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24%
13%
76%
87%
Yes No
Executive plans
Broad-based plans
Key features of share plansDo you net settle awards under global share plans?
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38%
48%
29%
25%
33%
26%
Never Sometimes Always
Executive plans
Broad-based plans
Key features of share plansBonus deferral
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6%5%
42%
6%
26%
2%
5%
8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Voluntary deferral Mandatory deferral
<20% 20-40% 41-60% 61-80% >80%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Non-executive directors/ Board members
Executive directors/ Executive committee
Senior management
Selected key personnel
Other
Share purchase plans Share option plans Share award plans Bonus deferral plans
Key trends around features of the plansParticipation in executive plans
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Key trends around features of the plansMalus and clawback – executive plans
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80%
85%
66%
56%
40%
20%
15%
34%
44%
60%
0% 20% 40% 60% 80% 100%
Voluntary bonus deferral plans
Mandatory bonus deferral plans
Share award plans
Share option plans
Share purchase plansYes No
50%
62%
56%
37%
27%
50%
38%
44%
63%
73%
Voluntary bonus deferral plans
Mandatory bonus deferral plans
Share award plans
Share option plans
Share purchase plans
Malus
Clawback
Key features of share plansChange the design or operation to get tax breaks
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6% 3%
16%10%
29%
41%
31%
24%
15%
71%
53%
66%61%
75%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
United States United Kingdom Europe (excl. UK) Asia Pacific Rest of world
All countries (where tax breaks available) Some countries No
Operation of global share plansTax approach taken for mobile employees
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59%
55%
19%
19%
23%
26%
Apportion income between countries based on relevant legislation applicable for eachcountry
Apportion income between countries using a generic approach (e.g. grant to vest in allcountries)
Tax in full in the country in which they are at the tax point
Executive plans
Broad-based plans
Operation of global share plansRecharging costs
61% of respondents recharge the costs of their share plan to the local entities.
Of the 39% of companies not recharging, complexity of operating recharges is cited as the main reason.
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44%
23%
15%
18%
Complexities of operating recharges Potential saving not considered sufficientHave not had time to consider yet Other
Operation of global share plansChallenging aspects
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60%
48%
62%
16%
46%
12%
0% 20% 40% 60% 80% 100%
Effective communication with employees
Tax compliance for internationally mobile participants
Legal/regulatory compliance
Somewhat challenging
Very challenging
54%
42%
61%
21%
46%
17%
Effective communication with employees
Tax compliance for internationally mobile participants
Legal/regulatory compliance
Somewhat challenging
Very challenging
Executive plans
Broad-based plans
CommunicationQuotes
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Communication is really the key to the success
of a plan
Effective communication is
critical but challenging
Education and communication
is critical
The industry as a whole is not very good at
communicating with employees, we need to
do a better job
Communication is the key element
Communicate, communicate, communicate!
Do not underestimate the
communication
Keep it simple with clear concise
communications in plain English
Invest heavily in communication
CommunicationInvestment in innovative methods
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Better engagementwith employees
To reduce costs andadministration in the
communicationprocess
Be seen to beinnovative/different
Demand/expectationfrom employees
Other
Executive
Broad-based
Generational trendsWhich generations value participation in share plans?
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2%
4%
13%
18%
14%
27%
39%
33%
14%
7%
2%
1%
68%
62%
49%
49%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Generation Z
Generation Y
Generation X
Employees born before 1960
Strongly Agree Agree Disagree Strongly disagree Don't know
(born 1961 – 1980)
(born 1981 – 1995)
(born from 1995)
24%
55%
22%
16%
57%
13%
18%
69%
21%
33%
54%
10%
Implement new plan
Focus on communications
Look into recharging
Roll-out plan into new markets
Focus on compliance for mobile employees
Get tax breaks in some countries
Executive Broad-based
Moving forwardFocus of attention in the next 12 to 18 months
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Moving forwardWould companies do it all again?
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Executive plans
Broad-based plans
88%1%
89%2%
?11%
?9%
A look at ChinaMitul Shah and David Luo
ChinaEconomic environment and prevalence of share plans
After 2007
The legislation environment has been improved by a series of regulations:
Circular 35 and 461 (relating to tax regulations)
Circular 7 (relating to foreign exchange controls)
Before 2007
Very few MNCs implementing equity-based awards to the employees working in China mainly due to:
Foreign exchange control
Lack of relevant registration in China
26 GSP Seminar – Spring update
Mandatory compliance requirements
Tax Registration – (share-settled and cash-settled plans )
• Multiple registrations for different entities
• Preferential tax treatment
• Regular tax reporting
SAFE Registration – (generally for share-settled plans only)
• Centralized application process
• Setup of a special SAFE account
• Quarterly SAFE filings and annual quota application
China
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Example – tax saving opportunity
Annual share incentiveincome (GBP)
Tax payable without Preferential Tax Treatment
(GBP)
Tax payable with Preferential Tax Treatment
(GBP)
1,000 More than 250 30
2,000 More than 500 74
5,000 More than 1,500 374
10,000 4,500 1,334
20,000 9,000 3,794
50,000 22,500 11,694
1 RMB : 0.10 GBP
China
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Practical considerations of operating share plans in China
Local competency Local practice & requirement
Internationally mobile employees
China
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Looking forward
1
2
3
Stricter foreign exchange administration?
Greater desire to participate in plan?
Any impacts on the current procedure?
China
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Global Reward UpdatesKatie Stephens
1. Changes in reporting
2009-2015
TIMING CHANGE
Two new alternatives:1. New “Online ESS” webpage based portal (for reporting
20 or fewer individuals); or2. Online filing in accordance with the ATO’s updated
software specs (version 2.0.0).
2015/2016 Onwards
ESS annual reports historically been accepted by ATO as:1. A paper based form; or2. A report created using the ATO’s “bulk load excel
spreadsheet”; or3. An online report in compliance with the ATO’s official
software specs (version 1.0.1).
AustraliaChanges to ESS annual reporting requirements
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Company’s annual wages return (“DADS-U”)
Companies must report information relating to their equity plans through the DADS-U, before 31 January 2016.
Declaration Sociale Nominative (“DSN”)
New monthly electronic return effective from 1 February 2016.
Pre 2016 Tax year
2016 Tax year
TIMING CHANGE
Note: The structure of the reporting information has not changed.
FranceChange in reporting process
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No specific legislative rulings in Luxembourg
Historically
TIMING REPORTING REQUIREMENT
The circular defined the tax treatment to apply to options.No real guidance on reporting.
2012 Circular
2015 CircularEmployers have to notify the authorities (Bureau RTS) at least two months before the implementation date of a share option plan.
Note: The recent circular does not modify existing principles but merely introduces a new requirement.
LuxembourgNew reporting requirements for share option plans
35 GSP Seminar – Spring update
2. Changes in taxation
Consideration:Should share awards and stock options continue to be taxable in full for EU citizens in Sweden at the tax point when some of the benefits were earned during a period of non-residence in Sweden?
Ruling:Sweden has the right to tax the full benefit under Swedish law however this is contrary to EU legislation on the freedom of movement of workers.
New position:EU citizens resident in Sweden at the tax point taxed on Swedish portion of the award only.
SwedenChanges to the taxation of share awards and stock options for EU citizens
37 GSP Seminar – Spring update
�UK domestics Internationally mobile �
For which employees could this cause an issue?
Key question: Is the award a “right to acquire secu rities”?
United KingdomIncome tax and social security treatment of RSUs from 6 April 2016
38 GSP Seminar – Spring update
Income Tax
The income tax position is the same .
What is the impact for employees and employers?
Capital Gains
CGT base cost is different .
NIC
NIC due on a apportioned basis for
“securities options”.
Remittance
Impacts on RB calculation .
CT Deductions
UK corporate tax deduction available on
the full gain for “securities options”.
United KingdomIncome tax and social security treatment of RSUs from 6 April 2016
39 GSP Seminar – Spring update
= Always treated as equity-settled for accounting purposes.
= Accounting treatment previously unclear whether it should be accounting for as equity or cash, IASB has now clarified.
Effective from 1 January 2018:
Amount paid in cash by employer
to cover taxes
Employer delivers net shares to the
individual
Share award
WorldwideAmendments to IFRS 2 for net-settlement of share-based payment transactions
40 GSP Seminar – Spring update
3. Upcoming/future changes
Current legislation at exercise:
FMV Exercise Price
Taxable Benefit
10
6
50% Deduction
Not
iona
l sha
re v
alue The employee may
claim a 50% deduction on the taxable benefit.
Why the changes?• New Liberal government are looking for opportunities to reduce tax benefits that
substantially benefit individuals earning in excess of CAD 200,000.
CanadaProposed limitations to the stock option deduction
42 GSP Seminar – Spring update
• Strict foreign exchange regulations.
• Difficult for Vietnamese nationals to participate in overseas employee share
schemes.
CURRENTLY
• Vietnamese nationals able to participate in overseas employee share schemes.
• Provided certain conditions will have to be met.
PROPOSED
VietnamProposed changes for Vietnamese nationals participating in overseas employee share schemes
43 GSP Seminar – Spring update
ClosingMitul Shah
Refreshments
45
Laura is a Consultant who has been working within the Deloitte Global Incentive Plan team in London since 2006. Laura has significant experience advising clients from a diverse range of industries on designing, implementing and communicating incentive arrangements. She also advises on the accounting, taxation and compliance issues involving the operation of share plans in the UK.
Laura has been on secondments to both a large multinational bank and a leading international investment company. There she helped conduct reviews of existing incentive arrangements and assisted with the implementation of new incentive plans.
Laura has been responsible for the design and coordination of the 2015 Global Share Plan Survey, analysing responses from 177 companies operating between them 436 different share plans.
Laura has a degree in Business Management and is a member of the Association of Tax Technicians.
Laura SpurrTel: +44 20 7007 7988Email: [email protected]
AppendixDeloitte speakers
46 GSP Seminar – Spring update
Mitul is a Partner in the Global Employer Services practice in London. Mitul has over fifteen years experience of advising companies and their remuneration committees on all aspects of executive compensation, including the design and implementation of executive remuneration strategies. He also has extensive experience on designing and implementing incentive plans globally, advising on the tax, structuring and regulatory aspects.
As part of this, Mitul has worked with a number of international companies across a wide range of industries. His clients range from FTSE 350 companies to companies listed in Australia, India, Japan and Russia/CIS, as well as privately owned companies and companies looking to float.
Mitul has a LLB (Hons) from the University of Birmingham and is a member of the Chartered Institute of Taxation.
Mitul ShahTel: +44 20 7303 5013Email: [email protected]
AppendixDeloitte speakers
47 GSP Seminar – Spring update
David Luo joined the Deloitte UK Global Incentive Plan team on secondment from Deloitte Shanghai where he was a Senior Manager within Global Employer Services. He started his career with another “Big Four” firm and first joined Deloitte in 2007. In his current role, David specialises in providing advice to global companies operating stock incentive plans in China.
David has experience in managing the delivery of services to many companies. This includes foreign exchange advisory & compliance services, country specific due diligence, advice regarding internationally mobile individuals and advice around corporate recharge arrangements.
David also has experience advising on PRC individuals’ income tax and social security. Additionally he has helped provide consultancy services for inbound and outbound assignees.
David graduated from Shanghai University with a Bachelor degree of Finance & Accounting and he is a member of Certified Tax Agent in China.
David LuoTel: +44 20 7007 4835Email: [email protected]
AppendixDeloitte speakers
48 GSP Seminar – Spring update
Katie is a Consultant with over four years’ experience within our Global Incentive Plans team in London. Her day to day role is working with multinational companies to address both domestic and internationally mobile employee issues relating to the operation of global incentive plans. This includes providing practical advice on the tax technical and regulatory positions applied globally.
Katie has extensive experience advising on the operation of incentive plans in the financial services industry and manages some of our biggest accounts. She works very closely with our US colleagues and has a lot of experience in advising on the specific US regulations that impact on deferred compensation arrangements.
Katie also has experience in advising on company recharge arrangements and corporate tax deductibility in respect of incentive plan costs, both for UK domestic and internationally mobile employees.
Katie has a degree in Economics from the University of Manchester and is a member of the Association of Tax Technicians.
Katie StephensTel: +44 20 7303 5013Email: [email protected]
AppendixDeloitte speakers
49 GSP Seminar – Spring update
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