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COVID-19: How To Handle Discretionary Share Plans

Thursday, 2 April 2020

A special Equiniti briefing

The extraordinarily turbulent state of the market, coincides with a busy time of the year for plan vestings as well as companies looking to grant new discretionary share awards. If you’re in that position, we can help.

Here are some key issues to consider:

toggle 1 Awards - principles of remuneration

Given that share prices are tumbling across the board, the first step for most organisations should be to consult the Investment Association’s principles of remuneration covering grants that follow a substantial fall in a company’s share price. You may wish to discuss this directly with your share plan adviser and we can guide you through how any changes can be administered.

toggle 2 Extend the acceptance window?

As a part of your workforce may not be contactable due to illness, you may want to consider extending the acceptance window to ensure that participants feel fully engaged and understand the plan and rules.

toggle 3 Vesting - pre-election measures

Given that you may see a dramatic shift in your share price, it’s worth considering the following pre-election measures to reduce negative impacts:

  • Remove the ‘sell all’ choice from a vesting instruction, limiting individuals to covering income tax exposure on a share award (default to ‘sell to cover’).
  • Pull all elections for a share option plan, with any instructions taken only on/after the vesting date.

Remember though that you need to avoid giving financial advice to employees.

toggle 4 Delays in trades

In a fast market with rapidly changing share prices, it may not be possible to execute trades in a timely manner due to a lack of liquidity. You may want to rethink supporting limit orders when there is no guarantee that an order can be executed, even if the price hits the right level in the market.

As a London Stock Exchange member firm, we can execute an order through any market counterparty. However, in the current conditions, it may not be possible to warehouse stock with specific brokers. This is another area in which we can provide support to address your particular circumstances.

The issue of trades taking longer to execute is something to highlight in your communication plan.

toggle 5 Employee Benefit Trust purchases

This is a good time to look at share plan hedging strategies and any opportunities linked to grants. While share prices are low, you may also want to think about addressing any shortfall of shares in your Employee Benefit Trust.

You should of course also speak directly with your Trust provider to discuss the purchase process and instruct the Trustee with a letter of wishes.

toggle 6 ERS tax returns

As we’re coming to the end of the tax year, we’re getting ready to produce ERS annual returns so that they can be filed electronically before 6 July 2020. However, given everything else that’s going on, we’re asking HMRC for an extension to give us all a little more flexibility.

We’re here to support you

Even in these extraordinary circumstances, Equiniti is here to support you and ensure the successful management of every aspect of your discretionary share plans. We’ve been working on the potential consequences of COVID-19 for several weeks, and continue to do so as the situation develops.