Glossary

ADR or ADS (USA)	American Depository Receipts or American Depository Shares. An American Depository Share is a negotiable security that usually represents shares of a foreign company and which are held by a US approved bank. The American Depositary Shares are issued by the bank and it is these securities, not the underlying shares which are traded in the US. It is a system which, broadly, allows non US company shares to be traded in the US. An American Depository Receipt is the collective term for the American Depository Shares of a company which are traded in the US.
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).
AIM	Alternative Investment Market. A sub-market to the London Stock Exchange. It is a market for smaller companies.
approved plan	Historical reference to a UK tax-qualified share plan that had been approved by HMRC prior to implementation of that plan. Nowadays, HMRC do not formally approve tax advantaged share plans. Companies must instead register their tax advantaged plans online with HMRC and self-certify that the plans meet the relevant legislative requirements.
award	This is a right under an incentive plan. Awards can come in many different forms: as options, conditional share awards/free shares, or upfront shares. The right is normally conditional on certain conditions being met.
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.
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.
Beneficial owner	The person who enjoys the benefits of ownership, although beneficially owned shares may be registered in another name or held by a trustee or nominee on behalf of that owner.
BEIS	The UK Department for Business, Energy and Industrial Strategy. This department, along with the UK Treasury and HMRC will be responsible for changes to rules or regulations which impact incentives and remuneration.
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 similar share-based awards.
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 regulating the offer and sale of shares. All shares issued by a company must be offered and sold in compliance with or under an exemption from any applicable state regulations in each state in which the offer takes place. 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 amendment provisions, data protection provisions, third-party right provisions, and the notice provisions. However, even 'boilerplate' clauses need to be carefully considered to make sure they are suitable and appropriate for what you intend
bond	A debt obligation. May be a type of security.
Brexit	Brexit is the name given to the UK’s withdrawal from the European Union. The UK formally left the European Union on 31 January 2020 and entered into a transition period (during which most EU laws continued to apply) that ended on 31 December 2020. Now, post-Brexit, the UK is no longer a part of the EU. The impact of Brexit on the share plans industry so far has been minimal, though more change may occur in the long-term.
CA 2006	The 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 participant is only entitled to cash.
cashless exercise	An exercise of an option where the participant does not physically pay any cash 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. Options with a market value exercise price are rarer nowadays.
chargeback (also called 'recharge')	See 'recharge'.
clawback	This means a post-vesting recovery of shares or cash from a share plan participant (including where the shares or cash have been delivered), usually on the occurrence of specified events, such as a financial misstatement. Clawback may be applied after the participant has already received the shares or cash from their award. 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 by the company. See 'share matching (or co-investment) plan'.
conditional share plan/ award	Employees are granted a conditional right to acquire shares at nil cost on vesting. Before vesting, the employee has no shareholder rights, e.g. dividend and voting rights. Sometimes called a free share award, restricted stock unit or restricted share unit (RSU). See 'free share plan’'
contingent capital or 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, including the UK Corporate Governance Code. See 'UK Corporate Governance Code'.
CRD	Capital Requirements Directive. 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 for favourable tax treatment 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.
delivery	The actual delivery of shares to a participant (or to someone else on their behalf) following exercise of an option or vesting of a conditional share award/free share award. In some cases, there may be a delay between exercise/vesting and the delivery, for example, if the option is exercised on a non-business day.
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. This is a big concern for shareholders. Dilution limits capture newly issued and treasury shares, but not existing shares purchased in the market.
Directive (EU)	A directive is a legislative act of the European Union that sets out goals for all EU member states to achieve. It is up to each individual country to devise their own laws to reach these goals. As a part of the Brexit process, any EU directives in force in the UK as of 31 December 2020 were essentially 'cut and pasted' into UK law.
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' or 'distributable reserves'). A dividend is payable only if 'declared' by the directors and usually is required to be approved by shareholders.
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.
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.
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 order to deliver benefits to employees/former employees of the settlor company and its group. These are often used in relation to an employee incentive plan so that the shares or cash held by the EBT can be used to satisfy awards made under that plan.
EEA	European Economic Area. Includes the 27 EU member states (no longer including the UK) 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 'qualifying' employees under Schedule 5 of ITEPA. 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 Section 423 Plans (in the US). See 'share purchase plan'. See also 'Section 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 Section 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 'Section 423 Plans'.
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).
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 Section 423 Plans (in the US). See 'Section 423 Plan (USA)'.
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.
EUPR (EU)	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. On exercise, participants are invoking their right to acquire the shares subject to the option.
exercise period	The period during which a participant may exercise an option. Also sometimes referred to as an 'option period'.
exercise price	Also known as the option price. The price at which an optionholder can exercise their option to acquire shares.
FATCA (USA)	The US Foreign Account Tax Compliance Act. . FATCA is intended to prevent tax avoidance by ensuring that US taxpayers who have assets held in foreign bank accounts have to declare any income they receive on those accounts.
FCA	Financial Conduct Authority. The FCA regulates financial services firms operating in the UK. The FCA publishes and manages the FCA Handbook that contains the UK Listing Rules, and also develops and enforces remuneration regulations.
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), whether directly or indirectly, to acquire the shares. The provision of financial assistance can be prohibited in some countries, but there may be an employee share plan exemption available.
Free Shares (or Conditional Free Shares) - Restricted Stock Unit Plan (RSUs)	Sometimes called a Performance Share Plan or Long Term Incentive Plans (LTIPs). Participants are granted a conditional right to be given shares for free on vesting. Vesting will occur after a period and sometimes if performance conditions are satisfied. 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 participant has no rights to dividends, to vote on the shares or to call for the shares. These rights will apply after the award vests. On or shortly after vesting, the shares are issued or transferred to the participant.
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 promotes transparency and integrity in business. The FRC publishes and manages the UK Corporate Governance Code. The FRC is also the body primarily responsible for developing rules governing generally accepted accounting practices in the UK.
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. These are published by the FRC for UK accounting standards and the Financial Accounting Standards Board (FASB) in the USA.
GDPR (EU)	General Data Protection Regulation. An EU regulation establishing the legal framework for data protection within the EU. The GDPR fully came into force in the EU on 25 May 2018. The UK post-Brexit has adopted a near identical data protection regime through the Data Protection Act 2018 and the 'UK GDPR'.
General Meeting	General meeting of shareholders. Sometimes these are held annually, and known as the 'Annual general meeting' or 'AGM'.
GEO	Global Equity Organisation. A non-profit making organisation providing a forum for exchange of information on the latest issues affecting equity compensation globally.
Glass Lewis	Glass Lewis is one of the most influential proxy advisory services and its views and voting recommendations regarding executive compensation carry significant weight with institutional investors.
golden handcuffs	A method to encourage key employees to remain with the company for a certain period of time by granting them awards on terms that require them to stay for a certain period. The 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, which has implications for their share awards. The specific detail of who is a 'good' or 'bad' leaver will depend on the plan rules. However, often a good leaver will mean a person who has left employment due to (for example) death, disability, retirement, redundancy or circumstances such as their employing company or business being sold. A bad leaver will mean those leaving in circumstances justifying summary dismissal, or resignation. A good leaver may get to keep some or all of their award, whereas a bad leaver will normally have their award lapse.
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. A non-ministerial department of the UK Government responsible for the collection of taxes.
IA	The Investment Association (IA) is a trade body that represents investment manages and asset management firms in the UK. Its views on remuneration are highly influential with institutional investors. The IA publishes Principles of Remuneration which set out its views on the remuneration of directors of listed companies.
IASB	The International Accounting Standards Board. The IASB is an independent, private-sector body that develops and approves International Financial Reporting Standards (IFRS).
IFRS 2	International Financial Reporting Standards. IFRS 2 includes rules on international accounting standards for share-based payments.
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. In the EU, this is governed by EU MAR. In the UK, since Brexit, this is governed by UK MAR and EU MAR. See 'MAR (EU)' and 'MAR (UK)'.
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 UK tax relief saving arrangement for individuals, where growth, returns or interest may be tax free.
ISO or Incentive Stock Option (USA)	A type of US tax qualified option with an exercise price which qualifies for US tax benefits. ISOs may be subject to lower tax at capital gains tax rates rather than income tax rates
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. It also includes provisions setting out the requirements applicable to tax advantaged share plans.
joint venture (or JV)	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.
lapse	The legal term for a right to shares ceasing to exist.
Legal and General	An institutional investor that publishes principles and guidance for executive pay levels.
legal owner	The person who holds legal ownership of the shares. The legal owner and the beneficial owner of shares can be different. The legal owner is the person who is registered as the legal holder of the shares, for example, the nominee.
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 to the London Stock Exchange.
long-term incentive plan (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 and continuing employment (good/bad leaver provisions).
malus	A provision enabling a pre-vesting adjustment which allows the company to reduce or lapse an award on the occurrence of specified events, such as financial misstatement or poor performance. See 'clawback'.
MAR (EU)	The EU 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. EU MAR also contains rules relating to how and when directors can deal with interests in their company's securities. Post-Brexit, EU MAR continues to apply to financial instruments admitted to trading or traded on an EU trading venue. UK MAR (which is similar to EU MAR) applies to financial instruments admitted to trading or traded on both UK and EU trading venues.
MAR (UK)	The UK’s rules on market abuse. UK MAR is a post-Brexit 'onshored' version of EU MAR. It applies to financial instruments admitted to trading or traded on both UK and EU trading venues. At present, it still follows EU MAR very closely although, post-Brexit, the UK could choose to change this.
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. For example, for a UK listed company, it is usually calculated in a specific way called the mid-market closing price.
NIC regulations	The Social Security (Contributions) Regulations 2001 (SI 2001/1004).
NICs or National Insurance contributions	The UK social security contributions 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	In a share plans context, a legal person (i.e. either an individual or a corporate entity) holding shares on behalf of participants post-vesting or post-exercise and facilitating the exercise of shareholder rights, e.g. voting, receiving dividends, sale of shares. See 'legal owner'.
non-executive director (NED)	A director of a company who is not a member of the executive management team and so are normally considered 'independent'. They are not normally employees of the company and so are intended to provide independent oversight, particularly of the executive directors.
option	A contractual right to acquire something (in our context, a share) at a future time or within a specified period at a price specified at the time the option is granted. Normally, once the option has vested, the participant can choose when they exercise their right to acquire the shares. See 'exercise period'.
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.
option price	Also known as the exercise price, or strike price. The price at which an optionholder can exercise their option to acquire shares. The price is usually set at the time the award is granted.
PDMRs	Persons Discharging Managerial Responsibility. Senior individuals within a UK listed company who must comply with certain specific obligations under UK 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 (EU)' and 'MAR (UK)'.
performance condition	Conditions set at the time of grant which must be satisfied before an award can vest. Performance conditions can measure the performance of the company, the group, a subsidiary, a particular employee, or a particular business unit or group of employees. They can be financial or non-financial.
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.
PRA	Prudential Regulation Authority. The PRA is part of the Bank of England and is responsible for the prudential regulation and supervision of the most systemically important financial services firms in the UK. The PRA develops and enforces remuneration regulations.
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 and so most companies wish to rely on an exemption - to avoid having to produce one.
Prospectus Directive	See 'EUPD'.
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 (also called 'chargeback')	Recharge occurs when the parent company of the group (which grants 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 recharge is because it can reduce taxable profit in the hands of the employing companies and deliver money in a tax efficient way to the parent.
record date	The date set by the board of directors (usually for an unlisted company) or a stock exchange (for a listed company) for a shareholder to officially own shares in order to receive the dividend or vote at the meeting.
Regulation (EU)	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 (unlike a directive which requires local implementation by the EU member states). As a part of the Brexit process, any EU regulations in force in the UK as of 31 December 2020 were essentially 'cut and pasted' into UK law. See 'directive'.
Remuneration Committee	Members of the board of directors who decide the remuneration of executive directors and potentially other senior executives. In the UK, the Remuneration Committee is normally comprised of non-executive directors (NEDs).
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 awarded in shares (or similar financial instruments) and that some remuneration must be deferred.
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 are transferred to the participant on the same day/at the same time as the agreement to grant/award the shares to the 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)	China's State Administration of Foreign Exchange.
SARs	Share/Stock Appreciation Rights. SARs provide value equivalent to the difference between the market value of the shares, calculated at the time of exercise, and the market value of the shares at the time the SAR was granted. The SAR can be settled in shares or cash.
savings-related share option plan (SAYE) (Sharesave)	A UK all-employee tax advantaged share option plan 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 (calculated at invitation or grant and which may be discounted by up to 20%) following the end of a 3 or 5 year savings period.
scrip dividend	A dividend where shareholders are able to choose whether to receive a dividend as either cash or shares.
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 (USA)	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.
Section 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.
Section 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.
Section 409A of the US Internal Revenue Code	A section in the US tax code which regulates the tax treatment of non-qualified deferred remuneration for US taxpayers.
Section 423 Plan (USA)	A US tax advantaged employee share purchase share plan under which eligible employees are given the right to purchase shares of the company at a future date. Under section 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. This plan is capable of operating with US tax advantages. It is sometimes extended into other countries but the tax treatment will be different. See 'employee stock purchase plan (USA)'.
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 matching (or co-investment) plan	Purchase Shares Participants are offered the right to purchase shares. Prior to purchase the participant has no right to dividends or to vote on the shares. These rights will apply after the shares are purchased by/on behalf of the participant (with no delay between purchase and transfer). To fund the purchase of the shares, the participant is invited to make a contribution by way of deduction from after tax salary or bonus. Matching Shares: The contribution is matched by the conditional right to acquire shares for free on vesting. Vesting will occur after a period and sometimes if performance conditions are satisfied. Before vesting, some or all of the matching 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 participant has no rights to dividends, to vote on the matching shares or to call for the matching shares. These rights will apply after the award vests. On or shortly after vesting, the matching shares are issued or transferred to the participant. The shares may vest early in specified circumstances like redundancy, ill-health and death.
share option plan	A plan providing for the grant to employees and/or directors of a company rights to acquire shares in the form of options. The plan will also include provisions governing the exercise of those rights.
share purchase plan	Participants are offered the right to purchase shares. The terms of the purchase are usually beneficial for the participants in that there may be, for example, a discount or a cheap dealing facility. Prior to purchase the participant has no right to dividends or to vote on the shares. These rights will apply after the shares are purchased by/on behalf of the participant (with no delay between purchase and transfer). To fund the purchase of the shares, the participant is invited to make a contribution by way of deduction from after tax salary or bonus.
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 USA).
SIP	Share Incentive Plan. A UK tax advantaged all-employee share plan. The relevant legislation is found in Schedule 2 of ITEPA. 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.
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.
sourcing	Tracking mobile employees as they move around during the vesting period and apportioning tax between jurisdictions. It can also be used to reference the sourcing of shares i.e. identifying what shares will be used to satisfy awards, such as newly issued shares, treasury shares or shares purchased in the market via a trust.
spread	The difference between the option price and the market value of a share 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 participants 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	Broadly, a subsidiary is a company owned by another company. The company which owns the subsidiary is its parent company. A subsidiary will normally be controlled by its parent company holding a majority of voting rights or shares, or perhaps having control in some other way. It is a normally a statutory defined term. In the UK, it is defined in section 1159 CA 2006 as follows: "A company is a 'subsidiary' of another company, if that other company: holds a majority of the voting rights in it, or is a member of it and has the right to appoint or remove a majority of its board of directors, or is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it, or if it is a subsidiary of a company that is itself a subsidiary of that other company."
'Tax advantaged' or 'tax qualified' plan or scheme	Any employee share plan providing tax benefits to employees or the relevant company/group.
Tax advantaged share option	An option granted under a tax advantaged share option plan under Schedules 3, 4 or 5 of ITEPA. See 'CSOP', 'savings-related share option plan (SAYE) (Sharesave)' and 'EMI'.
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 or the participant's nominee, which will be: at the start for restricted shares/stock; or following exercise of an option or the vesting of a conditional share award/free share award/RSU. 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 holds in itself. The company buys back its shares from shareholders and holds them '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 often used by investors and which measures the gains generated by a shareholding in a company, and includes share price growth and dividends.
UK Corporate Governance Code	A code setting out corporate governance standards that all companies with a premium listing on the London Stock Exchange, whether incorporated in the UK or elsewhere, 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'
underwater option	A share option is 'underwater' or 'out of the money' when the price which the employee has to pay to buy the shares under option (the option or exercise price) is greater than the current market value of the shares.
Upfront free shares (sometimes called 'restricted stock')	These are arrangements to enable employees (usually executives/key employees) to acquire and own shares upfront (meaning that they have voting and dividend rights like any other shareholder), usually free of charge. But the shares will be subject to restrictions and potential forfeiture for a prescribed period of time, after which the restrictions and risk of forfeiture fall away.
vest	'Vesting' normally means the participant becoming unconditionally entitled to receive the shares underlying the award (meaning there are no other conditions that need to be satisfied to receive the shares, whether performance-based, time-based or otherwise). The extent to which an award vests may depend on the extent to which the conditions have been met. Where an award is a conditional share award/free share award/RSU, the shares will normally be delivered to the participant on or shortly following vesting. Where an award is an option, 'vest' means that the employee becomes unconditionally entitled to exercise the option and acquire the shares subject to it (meaning there are no other conditions that need to be satisfied to receive the shares, whether performance-based, time-based or otherwise).
withholding	Where an employer withholds/deducts amounts from a payment to an employee. Withholding may take place to cover costs such as sale or currency conversion costs, and/or (most commonly) to withhold tax and pay that tax to the tax authority. Where withholding is tax related, 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.