Top problems with in-house share plan administration
Share plan administration is
never easy, even if you are a small company with only a couple of people
participating in your plan. This article looks at some of the common problems
facing companies who are looking to independently manage their schemes.
Who's in charge around here?
Often the employee or team
assigned to manage the administration in-house is sufficiently busy with their
own existing 'day jobs' and somewhere along the line their responsibilities in
relation to the share plan arrangements are squeezed in. When administering a
share plan in-house, it is a common misconception that the level of knowledge
and time required in order to ensure everything runs smoothly is minimal. The
employee(s) responsible must understand the deliverables and accountabilities
of all areas that come into contact with the scheme, as failing to do so may
adversely affect overall plan performance and incur expensive tax charges and
penalties. What's more, it is essential they possess the knowledge-base to
answer questions from plan participants and at Board-level.
Typically, share plan
administration responsibilities fall at the feet of HR and/or payroll, but the normal
demands often already put a time strain on such departments so great
consideration has to be taken when contemplating further increasing their
workload.
Failing to prepare and
financial penalties...
It can be an easy mistake to make
but it can be a real headache (as well as expensive in lost tax efficiency)
discovering an incomplete share option exercise, or a missing deadline for an
HMRC EMI filing. Procedures need to be put in place for all key transactional,
filing and compliance reporting activities otherwise there will inevitably be a
negative impact on not only the success of your plan, but also on how employees
view it.
HMRC will fine for late filings
of the obligatory annual returns (a return is needed for each plan type you
operate, even a Non-tax Advantaged Share Option Plan). Do you know when you
need to file with HMRC for an allotment of shares? Are you liaising with your
Company Secretary to keep Companies House records up to date? If you have the
most popular share plan, the Enterprise
Management Incentive (EMI), are you fully aware of all the different things
that can disqualify the favourable tax treatment? You don't want to fall into
one of the many traps that would result in you being the person that needs to
tell your most valuable key employees that their expected 10% tax charge is now
effectively much higher due to an in-house administration error...
Are you keeping track of when
options might vest and aware of when the accounting disclosure requirements for
your share options might alter? If you have an all employee plan like the Share
Incentive Plan (SIP) do you know what to do when an employee leaves and
what the choices are when the plan matures?
If you are looking at new grants,
then do you know whether your authorities are still valid and if you have
sufficient headroom to make the intended awards?
Do you fully understand the
meaning of every provision in your plan documents and when were they last
subject to a health-check and update?
Keeping up with the times
Are the employees responsible for
your arrangements aware of how often securities, tax and accounting standards
can change? Keeping up-to-date is unquestionably problematic, but it really is
essential in ensuring a scheme's on-going compliance.
Poor Plan Management
You must regularly audit all
transactions and monitor records of awards granted and take actions on a timely
basis, especially when dealing with leavers or major corporate actions.
Prevention is very much better than a cure and outsourcing the compliance is a
more cost effective solution than advisory fees for remedial work (assuming
repair is possible) when things go wrong, or your lost commercial opportunity
cost by having staff occupied grappling with the share scheme rather than
spending their time on the other aspects of their job role.
The issues highlighted above may
go some way towards explaining why companies look to outsource this potential
minefield. At RM2,
we act as plan administrator for most of the share schemes we create. In fact,
the service is so comprehensive it is not uncommon for our Operations Team to
pick up and rescue share plans that have been poorly constructed elsewhere. You
pay for insurance cover in other aspects of your business to limit damage so
think of outsourcing share plan administration in the same way. We provide you
with peace of mind that you are compliant and not at risk.
We work with a wide range of
clients from small entrepreneurial businesses to large household name quoted
company organisations.
If you are currently encountering problems with your share plan administration, or now realise from the above that it might be something to pass to an expert, then we would be pleased to arrange a free consultation in order to discuss a health check or plan administration outsourcing for you. For further details please email enquiries@rm2.co.uk.