Employee Share Schemes - Going Global

You're a UK company considering extending your employee share scheme worldwide. How do you go about it? What are the issues? What are the costs?

Why do companies "go global"?

Many companies extend their employee share schemes overseas. For some, the rationale is for employees to realise that they are part of a business wider than just their local operation. A global employee share scheme helps develop a worldwide corporate identity. For others, introducing a global employee share scheme enables gain sharing (i.e. participation in a company's financial success) to be distributed widely. Yet others cite the need to have a level playing field worldwide in terms of the benefits they offer to their employees.

Shareholder approval

Let's assume that a company has already got approval for an existing UK share scheme. Is the original shareholder approval wide enough to allow further schemes to be established for overseas employees?

Many companies include an authority at the time of establishing a UK plan to establish further plans which are modified to take account of local tax, exchange control or securities laws in overseas jurisdictions. Clearly, the position needs to be confirmed on a case-by-case basis.

What's the first step in "going global"?

Like any commercial operation, you need to do your "due diligence" to assess the position. Advice is needed for each country to which the scheme is to extend on local securities laws, tax implications (corporate and individual), exchange control regulations, withholding and reporting tax and labour law. Armed with this information, you can then establish whether the scheme is feasible in practical terms, the cost of using your scheme to incentivise employees worldwide and the benefit to the employees.

So how do you go about the due diligence exercise?

Information on the current status of securities, exchange control and tax laws (together with any other applicable laws) will be required from local advisers. The easiest way to do this is for Herbert Smith to produce a standard format questionnaire using our international database. We simply require the information to be confirmed by overseas advisers (using our network of international offices, associated firms and other advisers with whom we have worked in the past). This approach saves both time and (quite dramatically so) overseas advisers' fees.

Key issue 1 - securities laws

Investor protection legislation requiring a prospectus to be produced on a "public offering" of securities is widespread, and failure to comply can result not only in financial penalties, but also in claims by participants against the company (on...