Glossary


83(b) Election (USA)

An election by an employee to treat property (usually stock) that is subject to a risk of forfeiture (i.e. unvested shares) as being vested, with the result that the employee is taxed at that point on the difference between the amount paid for it (often zero or a nominal amount) and the current value, rather than being taxed on the value when the risk of forfeiture ends. This technique is frequently used when the property is expected to dramatically increase in value by the time the risk of forfeiture ends.

401(k) Plan (USA)

A type of qualified retirement plan in the USA in which employees agree to salary deduction, made pre-tax, to an employee trust. In many cases, the employer will match employee contributions up to a specified level. The investments in the plan are frequently employer stock but are not limited to employer stock.

409A of the US Internal Revenue Code

Regulates the tax treatment of non-qualified deferred remuneration.

423 Plan

The statutory reference to a US tax qualified Employee Stock Purchase Plan or ESPP.

See 'employee stock purchase plan (USA)'

ABI

The Association of British Insurers.

ABI’s Investment Affairs division formerly represented institutional investors and published guidelines for incentive plans. This body merged with the Investment Management Association (IMA) on 30 June 2014 to form the Investment Association (IA).

See 'IA'.

ADR or ADS (USA)

American Depository Receipts or American Depository Shares.

AIM

Alternative Investment Market. The London Stock Exchange’s growth market. AIM offers the benefit of operating an electronic quote and order trading facility. 

advantaged plan or scheme

Any employee share plan providing tax benefits in relation to potential gains.

advantaged share option

An option granted under a self-certified share option plan.

(Schedules 3 and 4 ITEPA).

See 'CSOP' and 'savings-related share option plan (SAYE) (Sharesave).

approved plan

Historical reference to a UK tax-qualified incentive plan approved by HMRC under ITEPA. As of 6 April 2014, companies use a process to self-certify that their plans meet ITEPA requirements.

ASB

Accounting Standards Board.

The ASB used to issue accounting standards applicable to UK companies in relation to the preparation of their accounts. This became the responsibility of the FRC Board on 2 July 2012.

See 'FRC'.

award

This is usually used to refer to the grant of a nil-cost option or the allocation of free shares under a long-term incentive plan (LTIP). The employee’s right to acquire a beneficial right in the shares is usually conditional on satisfying a performance condition and/or continued employment.

bail-in-bonds

See 'CoCos'.

bearer securities

Shares or bonds evidenced by certificates that are not registered in any name. They are negotiable without endorsement and transferable by delivery. Bearer securities often carry numbered or dated dividend coupons. UK incorporated companies can no longer issue bearer securities and all existing bearer securities have now been abolished. However, they are used in continental Europe.

beneficial owner

The person who enjoys the benefits of ownership, although shares may be registered in another name.

back dating

Generally means the practice of changing the grant date to an earlier date when the market price of the stock was lower in order to get a lower exercise price. This is usually illegal.

BEIS

Department for Business, Energy and Industrial Strategy.

Black-Scholes Formula

A way of valuing options, originally developed by Fischer Black and Myron Scholes as a tool for trading in the derivatives market (traded options), where, in an active trading market, it works well.

A statistical method of estimating the present value of stock options or warrants based upon the exercise price, fair market value of the underlying security, the length of the exercise period of the option or warrant, and the volatility of the underlying security. Less appropriate for share options and felt by many to be flawed as a valuation tool.

blue chip

Stock of a large company with a solid record of stable earnings and/or dividend growth, and a reputation for high quality management and/or products. More generally, anything of high quality.

Blue Sky laws (USA)

US state laws regulate the offer and sale of securities, including shares. All shares issued by a company must be offered and sold in compliance with or under an exemption from blue sky laws and the regulations of each state in which securities are sold. The name ‘blue sky’ comes from the preamble to an early Wisconsin law, designed to prevent companies from selling pieces of the blue sky to unsuspecting investors.

boilerplate language

Terms in a share plan or other legal contract which are regarded as standard. When used in the context of a share plan it usually means the backend of a share plan such as the change of control clause, early vesting, and amendment clause. At Tapestry we do not regard any aspect of a share plan as 'boilerplate' - every clause needs to be carefully considered to make sure it is suitable and appropriate for what is intended.

bond

A debt obligation.

CA 1985 and CA 2006

The Companies Act 1985 and Companies Act 2006.

Contains legislation applying to UK incorporated companies.

cash plan

A cash plan can be structured in various ways. It can be a pure cash plan or it could relate to shares in various ways, for example, as a cash settled option plan (sometimes called a Stock Appreciation Right (SAR)) or a cash  or phantom RSU.

The participant is not entitled to and will have no rights to or interest in shares.

The employee is only entitled to cash.

cashless exercise

An exercise of an option where the participant does not provide any cash upfront to pay the exercise price but rather sells the shares acquired on the exercise of the option to finance the original exercise price or receives a short-term loan to pay the exercise price before the shares acquired are sold in order to repay the loan. There are different types of facility available. Sometimes called a ‘Same Day Sale’ or ‘Sell to Cover’.

chargeback (also called 'recharge')

Chargeback occurs when the parent company of the group (which issues the awards or options) charges back the costs of the plan to the employing companies. There are generally two main types of cost – share costs (which means the cost of the shares which are delivered) and administration costs (which means all other costs). Note that the share costs could be real cash costs (e.g. if the parent bought the shares in the market) or they could be opportunity costs (e.g. if they issued new shares, the value of the shares which they could have sold in the market). One reason why companies implement a chargeback is because it reduces taxable profit in the hands of the employing companies and it delivers that money in a tax efficient way to the parent.

clawback

This is properly used to mean a post-vesting recovery of shares or cash on the occurrence of  specified events, such as a financial misstatement. It is sometimes used to include a pre-vesting adjustment (although, technically, this is malus).

See ‘malus’.

CoCos (also known as 'bail-in bonds')

CoCos are Contingent Convertible Capital.

A form of hybrid security that convert from being a bond (debt) into an equity security or share in the company if trigger events happen. For example, if a fall in the financial services firm’s Tier 1 capital or its debt to equity ratios breach a specified limit. The EU Capital Requirements Directive IV states that if it is possible for a firm to use CoCos they should include them in their variable pay arrangements.

co-investment plan

A plan under which employees purchase a number of shares in order to be allocated free shares.

See ‘share matching (or co-investment) plan’.

conditional share plan

See ‘free share plan’.

contingent capital

See 'CoCos'.

contingent convertible capital

See 'CoCos'.

corporate governance

The internal system by which companies are directed and controlled. It brings into consideration the roles and relationships of the company’s management, its board, its shareholders and other stakeholders, and the company’s goals. One of the main themes of corporate governance is the minimisation of conflicts of interest, and this is frequently achieved through detailed disclosure and voting rights.

An important theme of corporate governance is the nature and extent of accountability of people in the business. Many countries have governance codes to indicate standards.

CRD IV

Capital Requirements Directive IV. EU directive aimed at some of the financial services sector – banks, building societies and investment firms - which sets out wide-ranging requirements about how they must operate, including in relation to how they remunerate staff.

CSOP

Company Share Option Plan (usually qualifying under Schedule 4 of ITEPA).

deferred share bonus plan

  • An award is made in the context of a discretionary annual bonus plan;
  • Before the awards is made, the participant has no contractual right to an award and no rights as a shareholder;
  • Part of the bonus is deferred and is awarded as a conditional right to acquire shares in the future;
  • The deferral is mandatory, the participant has no choice;
  • The award is conditional on the participant remaining in employment until a vesting date.

dilution

A decrease in the value of individual securities (e.g. a share) as the result of the issuing, or potential issuing, of additional securities.

directive

A Directive of the European Union requiring achievement of a particular result in the national law of all EU member states, without specifying the means of achieving that result.

dividend

A payment to the shareholders of the company. It provides income from investment in the company. It is not a payment of interest on money invested. There is no automatic right to a dividend. Dividends may only be paid out of profits of the company available for that purpose (referred to as ‘distributable profits’). A dividend is payable only if “declared” by the directors and approved by shareholders. A company will normally pay an interim dividend and a final dividend.

Dividend equivalent

 

 

 

 

 

 

 

Dividend equivalents are not dividends. A dividend is a payment made to all shareholders (and may be subject to a separate tax rate). Dividend equivalents are contractual rights paid to individuals who have rights under an incentive plan. Dividend equivalents are designed to replicate in some way the economic value of dividends. Dividend equivalents can be paid in cash or by delivering additional shares at vesting or exercise. If paid in cash, dividend equivalents are usually taxed as a cash bonus. If dividend equivalents are paid by delivering additional shares then those additional shares are usually taxed in the same way as the other shares in that award.

double taxation treaty

The interaction of different tax systems can mean that there could be levying of tax in two or more countries on the same declared income or assets. There are treaties (agreements) between individual countries which set out how tax will be levied and paid in these circumstances. These are double taxation treaties. There is no single standard agreement or protocol for dealing with the tax of individuals caught by more than one tax regime - this is one of the reasons why taxation of mobile workers is complex.

DRIP

A Dividend Re-Investment Plan (DRIP) usually operates as follows:

  • cash dividends on shares are used to buy further shares which are held on behalf of the employee shareholder; and
  • any cash dividend not sufficient to purchase a whole share is retained and added to the next dividend.

dual listing

The listing of a security on more than one exchange. Increasingly, securities are listed on a local exchange and an exchange with more widespread coverage.

due diligence

A review of the facts or laws in relation to something which needs to be accurate or compliant. For example, there would be due diligence in preparing the annual report and accounts or a circular to shareholders, to make sure all the facts given to shareholders are accurate. It is also used to describe the process of checking laws and tax in operating a share plan globally.

The phrase was coined in the US, as under US law, certain persons (including directors, underwriters and auditors) are personally liable for a misstatement of material fact in a shareholder document, unless they can demonstrate that, after reasonable investigation, they had reasonable ground to believe and, in fact, did believe that the statement was true. Conducting the due diligence examination enables these persons to raise a ‘due diligence defence’ if sued.

EBA

European Banking Authority.

EU supervisory authority body responsible for issuing Technical Standards and guidance on the implementation of CRD IV.

EBIT

Earnings Before Interest and Taxes.

A financial measurement used in valuing a company and used in some performance conditions.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortisation.

A financial measurement used in valuing a company and used in some performance conditions.

EBT

Employee Benefit Trust. Also called ESOP or ESOT.

A trust (onshore or offshore) set up to hold shares (and other assets, such as cash) in relation to an employee incentive plan.

EEA

European Economic Area.

Includes the 27 EU member states as well as Iceland, Liechtenstein and Norway.

The EEA was established in 1994 following an agreement between the European Free Trade Association (EFTA) and what became the EU. It allows the additional members to participate in the EU’s internal market without being members of the EU. They adopt a lot of the EU legislation related to the single market but not laws in certain areas like agriculture and fisheries.

Switzerland, although it remains a member of EFTA, is not an EEA member.

EMI

Enterprise Management Incentive.

Tax advantaged employee share options granted by certain ‘qualifying’ trading companies to employees.

See ‘enterprise management incentive (or EMI option)’.

employee share/stock purchase plan

A plan which involves employees agreeing to salary deductions to purchase shares, usually at a discount. This type of plan can be tax-favoured in the US.

Also known as ESPPs and 423 Plans (in the US).

See ‘share purchase plan’. See also ‘423 Plans’ and ‘employee stock purchase plan (USA)’.

employee stock purchase plan (USA)

A plan under which eligible employees are given the right to purchase shares of the company at a future date on favourable terms. Under s.423 of the US Internal Revenue Code, if a plan meets certain requirements, employees can purchase stock at a discount of up to 15% of market price without any US tax consequences. This type of plan is frequently extended into other countries but the tax treatment will be different.

See ‘423 Plans’.

employees trust

A general term commonly used to describe a discretionary settlement (i.e. trust), for the benefit of employees of a company or group, as a class.

employees’ share ownership plan (or ESOP)

In the UK “ESOP” is used to describe arrangements involving an employee benefit trust and share plans. It is also commonly used to describe the employee benefit trust. In the US, “ESOP” is used to describe a type of retirement benefit scheme.

employees’ share scheme

Defined in section 1166 CA 2006 as a scheme for encouraging or facilitating the holding of shares in a company by or for the benefit of the employees or former employees of the group or their spouses and minor children. It is important to bear this definition in mind as many important statutory exemptions (for example, in relation to financial assistance under section 682 CA 2006) only apply if the relevant plan falls within section 1166. The term is frequently used to describe any employee share plan (even though it may not fall within the statutory definition).

enterprise management incentive (or EMI option)

An option which satisfies the provisions of Schedule 5 to ITEPA.

See ‘EMI’.

EPS

Earnings Per Share.

A company performance metric calculated by dividing the net share income by the number of ordinary shares issued. Diluted EPS considers the net income in relation to the number of ordinary shares including ordinary shares that are committed to be issued once things like options have been exercised.

See ‘fully diluted earnings per share’.

ERISA (USA)

The Employee Retirement Income Security Act of 1974.

The principal USA law regulating retirement and employee benefit plans.

ESOP Centre

Employee Share Ownership Centre.

An organisation formed in 1988 to inform, lobby and research in the interest of developing all forms of broad-based employee share ownership plans in the UK and Europe.

 

EUPD

 

See 'EUPR',  'directive' and 'regulation'.

 

EUPR

 

 

 

 

 

 

 

EU Prospectus Regulation.

EU regulation which aims to create a single capital market in the EU. The regulation replaced the EU Prospectus Directive (EUPD) on 21 July 2019.

EUPR simplifies and standardises securities laws for many companies looking to raise money in the EU. A key feature is ‘mutual recognition’, i.e. a prospectus that has been approved by the competent authority of one EU member state is mutually recognised by competent authorities of all member states. The EUPR contains an employees’ share plan exemption to the requirement to issue a prospectus for employers offering share-based incentives to EU-based employees.

See 'directive' and 'regulation'.

EVP

Employee Value Proposition.

A concept used to describe the balance of rewards and benefits that are received by employees in return for their performance in the workplace.

executive share option
plan

See ‘advantaged share option’.

This term may also cover discretionary non-tax advantaged plans for selected participants.

exercise

The exercise by a participant of an option or award granted under a plan.

exercise period

The period during which a participant may exercise an option or award.

exercise price

 

Also known as the option price.

The price at which an optionholder can exercise their option to acquire shares.

FATCA

The US Foreign Account Tax Compliance Act.

FCA

Financial Conduct Authority.

Regulates financial services firms doing business in the UK. The FCA is one of the successors to the Financial Services Authority (FSA), the other being the PRA.

The FCA is relevant to share plans because it publishes and manages the FCA handbook, containing the Listing Rules, and also the remuneration regulations which apply to specified financial services firms operating in the UK.

financial assistance

The provision of financial assistance (e.g. a cash contribution, loan, guarantee or indemnity) to any party (such as the participant or to a share plan trustee) to acquire the shares.

The provision of financial assistance can be prohibited in some countries. In many countries there is an exemption for employee share plans.

Free Shares (or Conditional Free Shares) - Restricted Stock Unit Plan (RSUs)

Sometimes called a Performance Share Plan or Long Term Incentive Plans (LTIPs).

Employees are granted a conditional right to be given shares for free on vesting.

Before vesting, some or all of the shares subject to an award may be held by the company or in a trust ,or new shares may be issued if and when the award vests.

Before vesting, the employee has no rights to dividends, to vote on the shares or to call for the shares.

On or shortly after vesting, the shares are issued or transferred to the participant.

Dividends are paid after the award vests.

FRC

Financial Reporting Council.

An independent UK regulator responsible for promoting high quality corporate governance and reporting to promote investment in UK listed companies.

The FRC publishes and manages the UK Corporate Governance Code.

See 'UK Corporate Governance Code'.

FSB

Financial Stability Board.

An international body that monitors and makes recommendations about the global financial system. It was established after the 2009 G20 summit in London as a successor to the Financial Stability Forum. It is relevant in the context of share plans because the FSB has issued remuneration principles which many G20 and other countries have applied to a greater or lesser extent. These principles acted as the precursor to CRD IV.

fully diluted earnings per share

Earnings per share calculated as if all share options were exercised and all convertible bonds and preferred stock (and certain convertible debt) were converted. Fully diluted earnings per share are usually a more accurate reflection of the company’s real earning power.

See ‘EPS’.

GAAP

Generally Accepted Accounting Principles.

Rules and procedures generally accepted within the accounting profession. The Financial Accounting Standards Board (FASB) is the body primarily responsible for developing rules governing generally accepted accounting practices.

GDPR

 

 

 

General Data Protection Regulation.

A regulation in EU law on data protection and privacy in the EU and the EEA. It also addresses the transfer of personal data outside the EU and EEA areas.

See also 'UK GDPR'.

General Meeting

General meeting of shareholders.

GEO

Global Equity Organisation.

A non-profit making organisation providing a forum for exchange of information on the latest issues affecting equity compensation globally.

golden handcuffs

A method to encourage key employees to remain with the company for a certain period of time by granting them options or awards on terms that require them to stay for a certain period. The options or awards will usually lapse if the employee leaves the company within that period.

good leaver/bad leaver

A description of the circumstances in which a person ceases to be an employee of a company. The specific detail of who is a “good” or “bad” leaver will depend on the plan rules. However, generally, a good leaver will mean a person who has left employment on grounds of death or disability and a bad leaver will mean a person leaving in circumstances justifying summary dismissal or resignation.

grant

As a verb, giving options or share awards to participants.

As a noun, the process of giving such rights.

HMRC

Her Majesty’s Revenue & Customs.

IA

The Investment Association.

The IA was established on 30 June, 2014 following the merger of ABI Investment Affairs and the Investment Management Association (IMA). The Investment Association has assumed responsibility for guidance previously issued by the ABI/IMA.

IASB

The International Accounting Standards Board.

Established in 2001 to develop a uniform set of international accounting standards. The IASB is intended to work closely with the national standard setting bodies such as the Financial Accounting Standards Board in the US.

IFRS 2

International Financial Reporting Standards.

International accounting standard for share-based payments.

incentive stock options

US tax approved plans in which options are not subject to tax at grant or exercise.

See ‘ISO or Incentive Stock Option (USA)’.

insider trading/dealing

Term used to describe the buying and selling of shares based on material information relating to the company, that has not been made public (i.e. inside information).

Insider trading is a criminal and civil offence in many countries. It is also used as a short-hand term to refer to the restrictions applicable to directors and people with access to unpublished information on when they can and cannot buy or sell shares and exercise options.

See 'MAR'.

institutional investor

An institution such as an investment company, pension fund or insurance company, which invests in the stock markets as part of its business (for example, pension funds invest in the stock markets to enable them to pay pensions). Institutional investors account for a majority of overall trading volume in most major securities markets. They sometimes group together to represent their interests.

invitation

An invitation to an employee to participate in a plan.

IPO (also called flotation)

Initial Public Offering.

A process whereby a company offers its shares on a public stock exchange for the first time.

ISA

Individual Savings Account.

A tax exempt savings arrangement for individuals.

ISO or Incentive Stock Option (USA)

US tax qualified option up to $100,000 (valued at grant) of ISO shares becoming exercisable in a single calendar year. May receive preferential tax treatment.

See ‘incentive stock options’.

ISS

Institutional Shareholder Services. A global research and proxy voting service.

ITEPA

The Income Tax (Earnings and Pensions) Act 2003.

ITEPA contains the UK tax legislation applying to share plans. The specific legislation affecting tax advantaged share plans is contained in Schedules 2-5 and related sections.

joint venture

A company that is 50% owned by each of two companies, neither of which has a controlling interest. The term may also be used to describe a different percentage ownership by two or more companies, but these will likely not be legal joint ventures. 

Listing Rules

Rules, located in the FCA handbook, governing UK listed companies, setting out minimum requirements for the admission of securities to listing, the content of listing particulars and ‘continuing obligations’ of issuers after admission.

long-term incentive plan (or LTIP, or restricted share unit plan (RSU))

Arrangements to enable employees (usually executives/key employees) to acquire shares, usually free of charge, at some point in the future. The acquisition is generally subject to the satisfaction of set performance conditions.

For plans which involve shares being awarded upfront, see 'restricted share plan'.

long-term incentive scheme

Defined in the Listing Rules in the FCA handbook.

See ‘Listing Rules’.

malus

A provision enabling a pre-vesting adjustment which allows the company to reduce or lapse an award or option on the occurrence of specified events, such as financial misstatement or poor performance.

See ‘clawback’.

MAR

Market Abuse Regulation.

The EU Regulation which contains prohibitions on insider dealing, unlawful disclosure of inside information and market manipulation, and provisions to prevent and detect these. MAR also contains rules relating to how and when directors can deal with interests in their company's securities.

MAR came into effect on 3 July 2016 and replaced the existing UK civil market abuse regime, including the 'Model Code'.

See 'Model Code'

market value

The market value of shares. This is usually determined by reference to the quoted prices on the relevant stock exchange. It is also sometimes called Fair Market Value. It may have a very specific meaning in a country for tax purposes.

Model Code

A set of share dealing rules relating to when and how directors could deal with interests in their company's securities, which was applicable to companies governed by the Listing Rules. The Model Code was deleted following MAR coming into effect on 3 July 2016.

See ‘MAR’.

NAPF

National Association of Pension Funds.

Now called the Pensions and Lifetime Savings Association (PLSA).

See 'PLSA'.

NIC regulations

The Social Security (Contributions) Regulations 2001 (SI 2001/1004).

NICs or National Insurance contributions

Levy (a form of taxation) payable by employers, employees and the self-employed at given rates on earnings. Most provisions relating to NICs are contained in secondary legislation, i.e. statutory instruments setting out regulations, rather than primary legislation (Acts of Parliament).

nil-cost option plan

  • An option is granted to acquire shares of the parent company.
  • The exercise price is zero (or a nominal amount like £1 or $1 to exercise the whole option).
  • The option is non-transferable except in the case of death – when it can be exercised by the legal representatives of the deceased’s estate.
  • The option can be exercised after a set period. If it is not exercised by the date before it is due to lapse it can be exercised automatically on behalf of the participant.
  • The option can be exercised early in specified limited circumstances like redundancy, ill-health and death.
  • The exercise of the option may depend on the fulfilment of a performance condition set at the date of grant. In some cases the performance condition may be waived in circumstances which give rise to early exercise.

nominal or par value

Every share in a UK company has a nominal (or par) value. The nominal value of a share is not the same as the price at which the share is traded. Nominal value is simply the nominal amount assigned to a share by the company. There is nothing inherent in the nature of a share which requires a nominal value. However, it is used in statutory and accounting requirements and it measures the liability of a shareholder to contribute to the capital of a company unless the shareholder has agreed to pay a share premium.

See 'share premium'.

nominee

A legal person (i.e. either an individual or a corporate entity) holding shares on behalf of another party. For example, a nominee may hold shares on behalf of participants post-vesting and facilitate the exercise of shareholder rights, e.g. voting, receiving dividends, sale of shares. The nominee sometimes holds the shares under a bare trust.

non-executive director

A director of a company who does not have an executive role.

option plan

  • An option is granted to acquire shares of the parent company.
  • The exercise price may be at market value or at a discount to market value.
  • The option is non-transferable except in the case of death - when it can be exercised by the legal representatives of the deceased's estate.
  • The option can be exercised after a set period.
  • The options may be exercised early in specified limited circumstances like redundancy, ill-health and death.
  • The exercise of the option may depend on the fulfilment of a performance condition set at the date of grant. In some cases the performance condition may be waived in circumstances which give rise to early exercise. The exercise may be conditional on saving for a period.
  • No dividends, or “dividend equivalents” are paid under the option.

performance condition

Conditions set at the time of grant which must be satisfied before an award can vest or options become exercisable.

PDMRs

Persons Discharging Managerial Responsibility.

Senior individuals within a UK listed company who must comply with MAR (either by virtue of them having regular access to insider information or having the power to make decisions affecting the future of the business).

See ‘MAR’.

Phantom option

A right to receive a cash payment (not shares) based on the increase in value of a set number of shares over a set period. It can look like an option over shares and be exercised in a similar way but only cash will be paid at the time of exercise.

PIRC

Pensions Investment Research Consultants.

An organisation which provides reports to institutional investors on a company’s compliance with corporate governance requirements, particularly in relation to disclosure of executive remuneration.

PLSA

Pensions and Lifetime Savings Association

Formerly called the National Association of Pension Funds.

The "trade" association of pension fund managers and, with the IA, representative of institutional investors, influential in setting formal guidelines for accepted standards in share plans, e.g. on the use of performance conditions and levels of dilution.

Power of Attorney

A legal document that enables one person to act on behalf of another person. There are strict legal rules about the appointment of an attorney which can differ between countries.

ProShare

 

A non-profit organisation, formerly known as ifsProshare, which supports, educates and lobbies on employee and executive share ownership.

prospectus

A document which sets out key information about the offer of securities which must be issued and delivered, usually publicly, before shares can be offered. These can be very long detailed documents to comply with the specific country’s legal requirements.

Prospectus Directive

See ‘EUPD’.

PRA

Prudential Regulation Authority.

The PRA is part of the Bank of England and is responsible for the prudential regulation and supervision of financial services firms in the UK. The PRA is one of the successors to the Financial Services Authority (FSA), the other being the FCA.

The PRA develops and enforces remuneration regulations for some large financial services firms.

Ratings

These are Green, Amber and Red:

Green - No filings or approvals required - the plan can be launched without making any securities or exchange control filings at any stage. However, there may be other important legal and tax issues to be considered like employee consultations and translations.

Amber - These countries may require filings or approvals but of a fairly minor or routine nature, i.e. they can be done quite quickly and at minimal cost. There may also be some minor ways in which the plan cannot operate as designed.

Red - These countries require major filings or approvals. These could take some time to complete and in some cases can be fairly expensive. There may be some significant respects in which the plan cannot operate as designed.

recharge

See ‘Chargeback’.

record date

The date set by the board of directors for a shareholder to officially own shares in order to receive the dividend or vote at the meeting.

regulation

An EU regulation is a form of legislation that is directly applicable in all EU countries. This means that it applies and is enforceable immediately without needing to be transposed into national law.

Remuneration Committee

Members of the board of directors (in the UK they are usually all non-executive directors (NEDs)) who decide the remuneration of executive directors and senior executives.

remuneration regulations

Measures introduced following the global financial crash in 2008 by many countries and international bodies (e.g. the EU and the G20) to regulate how individuals in the financial services sector may be paid. The regulations often include requirements that some remuneration must be made in shares and that some remuneration must be deferred. Remuneration regulations include, for example, CRD IV.

restricted stock unit plan (or restricted share unit scheme)

See ‘LTIP’.

restricted share (or stock) plan

  • Shares are given to a participant at the start but are subject to restrictions on disposing of the shares (or an interest in the shares) for a period of time. The shares are not subject to a risk of forfeiture once they have been given to a participant.
  • The shares may be held by a third party during the restricted period, like a trustee.
  • The participant is entitled to the dividends.
  • The restrictions may be lifted in specified circumstances like redundancy, ill-health and death.

RREV

Research Recommendations Electronic Voting.

A service providing proxy analysis and voting recommendations for institutional investors in the UK. Part of the RiskMetrics Group.

SAFE

China's State Administration of Foreign Exchange.

SARs

Share/Stock Appreciation Rights.

SARs provide value equivalent to the gain made on the exercise of a share option (the Spread). The SAR can be settled in shares or cash.

See ‘spread’.

savings-related share option plan (SAYE) (Sharesave)

A UK all-employee tax advantaged share option plan permitted under Schedule 3 to ITEPA. Under an SAYE, employees agree to monthly salary deductions which may be used to buy shares for an exercise price (set at the time of grant) following the end of a 3 or 5 year savings period.

scrip dividend

A scrip issue made in lieu of a cash dividend.

Shareholders are able to choose whether to receive a dividend as either cash or shares. In some jurisdictions, a scrip dividend is taxable as income in the same way as a cash dividend.

scrip issue

Also called a capitalisation issue or a bonus issue, a scrip issue means the issue of new shares to existing shareholders at no charge, pro rata to their existing shareholdings.

SEC

Securities and Exchange Commission.

The primary USA federal regulatory authority for the securities industry, whose responsibility is to promote full disclosure and to protect investors against fraudulent and manipulative practices in the securities markets. The SEC enforces, among other acts, the Securities Act of 1933 and the Securities Exchange Act of 1934.

sensitive personal data

Data protection legislation will usually include a separate definition of 'sensitive personal data' which is subject to stricter processing and security procedures. Sensitive personal data will generally include information such as a data subject's racial or ethnic origin, political opinions, religious beliefs, trade union activities, physical or mental health, sexual life, and details of criminal offences.

share option plan

A plan providing for the grant and exercise of rights to acquire shares by employees and/or directors of a company.

share matching (or
co-investment) plan

  • The participant is invited to make a contribution by way of deduction from after tax salary or bonus.
  • The contribution is matched by the conditional award of shares. The additional shares will vest (and be released to the participant) after a period and sometimes if performance conditions are satisfied.
  • The shares may vest early in specified circumstances like redundancy, ill-health and death.

share purchase plan

  • Employees are offered the right to purchase shares.
  • The terms of the purchase are usually beneficial for the employees in that there may be, for example, a discount or a cheap dealing facility.
  • Prior to purchase, the employee has no right to dividends or to vote on the shares. After purchase the employee becomes the unrestricted owner of the shares.

share premium

The amount in excess of the nominal value of a share paid by a subscriber to the company on the issue of a new share.

shares and share capital

A share is a unit of ownership in the company and may consist of various rights – rights to dividends, to vote and so on. The number of shares which a company has issued is known as its issued share capital. Shares are also known as ‘stock’ (particularly in the US).

SIP

Share Incentive Plan.

A UK tax advantaged all employee share ownership plan. The relevant legislation is found under ITEPA, Schedule 2. SIPs enable acquisition of free partnership (i.e. purchased by the participant using pre-tax salary), dividend and/or matching shares on a tax beneficial basis. Formerly known as an AESOP.

social security

 

 

 

 

There is no globally consistent definition of social security. The concept is of additional contributions made by employees (and sometimes also by employers) related to earnings. These contributions are designed in principle to fund things such as pensions, healthcare and unemployment insurance. In some countries, there may be other employment costs which local counsel considers outside the concept of social security.

sourcing

Tracking mobile employees as they move around during the vesting period and apportioning tax between jurisdictions.

spread

The difference between the exercise price and the higher market value at the point of calculation – usually at the time of exercise (also called the option gain).

Stock settled SARs

  • The RSU information, in combination with the option plan information, gives a good indication of the relevant issues for most types of stock settled SARs.
  • These are where employees are granted an option over a "notional" number of shares at a "notional" exercise price - usually market value.
  • They are exercisable in the future. On exercise, no funds are required from the participant. Instead, the participant receives a number of shares equal to the difference between the notional exercise price and the market value at exercise (or a capped amount).

However, tax issues should be specifically checked with local lawyers.

subsidiary

A company is a subsidiary where a parent company controls the company by: (a) holding a majority of the voting rights; or (b) controlling the board. This is usually a statutory defined term (e.g. section 1162 of the CA 2006).

tier 1 capital

A regulated financial services firm is likely to need minimum levels of capital to enable it to carry on business. The international regulatory framework for banks is set and issued by the Basel Committee on Banking Supervision.

Tier 1 capital is the core measure of a bank or other financial services firm’s financial strength. Tier 1 is usually ordinary shares/common stock but can include other instruments which convert into ordinary shares/common stock. The reason for having a proportion of capital held as tier 1 capital is that it should provide protection against unexpected losses. The amount of tier 1 capital is under review by the Basel Committee.

third country firm

Used in the context of CRD IV remuneration regulations. If a firm is a third country firm, the extent to which remuneration regulations apply is limited. A third country firm is one that is a regulated financial services firm that has its head office outside the EEA.

transfer to participant

The actual transfer (delivery) of shares to a participant following exercise of an option or vesting of shares. In some cases there may be a delay between exercise/vesting and the transfer, e.g. if the option is exercised on a non-business day or where new shares have to be issued. The value of the shares may change during this period and in most jurisdictions the taxable event is at exercise/vesting, even if the transfer takes place at a later time or date, but this is not always the case.

treasury shares

Treasury shares are shares which a company buys back from shareholders and holds ‘in treasury’. One of the permitted uses of treasury shares is for transfer to employees for the purposes of an employee share scheme. There are specific tax, accounting, disclosure and regulatory obligations relating to treasury shares.

TSR

Total Shareholder Return.

A company performance metric which values the return to shareholders as a result of holding the shares in a company and includes share price growth and dividends.

UK Corporate Governance Code

A code setting out corporate governance standards that UK listed companies should apply.

The Code operates on a "comply or explain" basis.

UK GDPR

 

 

 

 

UK data protection rules.

Following the departure of the UK from the EU, data protection in the UK is governed by the Data Protection Act and the UK version of GDPR enacted under the European Union (Withdrawal) Act 2018.

See 'GDPR'

UKLA

UK Listing Authority.

Part of the FCA which regulates listed companies’ compliance with the Listing Rules.

underwater option

A share option with an exercise price higher than the current market value of the shares.
Sometimes called an ‘out of the money’ option.

vest

In relation to options, "vest" usually means that the employee becomes entitled to exercise the option and acquire the shares subject to it, on the payment of the exercise price.

In relation to share awards, "vest" usually means that the employee becomes entitled to the shares or to benefit from them (e.g. a right to receive dividends), i.e. a beneficial interest in the shares.

withholding

An obligation on an employer to withhold/deduct tax from a payment to an employee and pay that tax to the tax authority. The obligation to withhold is usually set out in local tax laws but sometimes there can be a lack of clarity in relation to whether it applies to share awards or in particular circumstances.