How To Successfully Implement An Employee Share Plan As Part Of The IPO Process

 

The IPO process is demanding, with lots of different workstreams happening all at the same time.

However, deciding what your post-IPO remuneration structure will look like, should be a priority. You will need to think through your strategy, including interaction with directors’ remuneration structure and non-executive directors’ pay which must be sign-posted in the prospectus. Plan rules and shareholder approval may be required with disclosures in the IPO documentation.

When designing your employee share plan, have in mind your goals from the beginning. What do you want your plan to achieve?  

Is it to reward those who helped you to IPO? Or do you want a more long-term approach to incentivise staff after you float? Most likely it will be both.

You should also think about how your new arrangements impact existing equity holders and ensure that your senior team are still incentivised to perform after you list.

Don’t make the plan rules too complicated, either, or you may struggle to engage with staff and put off potential investors.

But if you get it right, then your staff will become excited about the IPO process.

This is the time when most companies engage a firm like EQ, which will be able to help you set up a set of share plans that work for your company and your staff.

Once you’ve figured out which type of employee share plan best suits your company’s goals, you need to decide how you are going to source the shares.

You need to consider whether to dilute existing equity holders’ stakes through allotting new shares (following investor guidelines), or alternatively, using existing shares. There are various methods to use which include through the issue of new shares, using Treasury Shares, transfer from an Employee Benefit Trust, or market purchase, or a combination of these. You may decide it is preferable to operate a trust vehicle where the shares are held and released to employees at the appropriate moment.

Another issue you should consider is ongoing liquidity and how many shares you will need to issue under existing employee shares at IPO and after listing at the end of any holding periods and bulk share plan maturities and vestings.

You might have lots of employees already holding shares or there may be employees receiving shares via share plan vestings triggered by the IPO which offer the chance to sell.

This will need planning, but it is important to get right as you need to ensure that you land on a position that investors are comfortable with.

If you bring on a share registrar and employee share plan administrator expert such as EQ early in the process, they will help you deal with all these issues, as well as managing the process for employees selling (or buying) shares at IPO. EQ can act as selling agent on their behalf, taking instruction from the employee and submitting the order into the IPO book. We can process instructions and settle sales with the market, then pay tax/option costs to the company and net proceeds to employees, handling FX as well if multi-currency is required for employees and overseas’ payrolls.

Once you have decided your employee share plan structure, it’s time to walk your staff through the plans.

They need to know how the IPO process will affect them, so ensure you provide regular updates and in plain English. If there is any ambiguity, you risk failing to get their buy-in and jeopardizing the success of the IPO itself.

Are they going to be able to sell their shares or is there a lock-in period? Who gets awarded what? What are the eligibility or qualification criteria, if any?

These are all of the things they need to be aware of. Also, think about how best to communicate this information. Do you supplement written communication with Q&A sessions?

You might also decide to enrol a team of external consultants who specialise in this area to explain to your workforce how they will be affected.

Communicating the post-IPO remuneration structure to staff is as important as determining the structure in the first place. So, take your time with it. Having effective communications should mean employees deservedly get to feel the excitement and positivity of the IPO.

People often think of the IPO as being the end of the story, but, if anything, the IPO is really the start.

As a public company, you will be under far greater scrutiny with regards to pay and good governance. You will also have to be mindful of corporate governance codes and guidelines, particularly with regards to executive remuneration. Market Abuse Regulations apply so you will need to have a share dealing policy in place, with monitoring of PDMRs (Persons Discharging Managerial Responsibilities) and public disclosures of directors’ dealings.

However, you must also be mindful of changing shareholder expectations, so it pays to take a flexible approach and to review your policies regularly.