EUROPEANCHAPTER

Offering equity to employees is a key strategy for startups to attract talent over larger firms, seen in Europe where successful companies like Klarna and Deliveroo have spurred new ventures. However, European taxation on employee stock options varies significantly by country, with Estonia, Lithuania, and the UK cited as the most favorable due to lower tax burdens and simpler regulations compared to countries like France and Germany, which have more stringent tax policies and regulations. These differences impact how much employees can potentially gain from their stock options, influencing company decisions on offering ESOPs versus other equity schemes like VSOPs in heavily regulated markets.

The Asian Utilities Engagement Programme (AUEP), led by the Asian Investor Group on Climate Change (AIGCC), focuses on linking executive compensation to climate-related Key Performance Indicators (KPIs) in Asian utilities. The program urges these companies to implement governance frameworks for climate issues, establish decarbonization timelines, disclose climate information according to TCFD guidelines, address physical climate risks, and ensure their lobbying activities align with climate objectives. Several companies, such as Japan's J-Power and Chub Electric, as well as Malaysia's Tenaga Nasional, are already incorporating sustainability KPIs into their compensation structures, and the program plans to expand its engagement to regulators and other markets.

The article discusses the significant increase in CEO pay at the crown estate, an ancient portfolio of land and property in England and Wales. The current CEO, Dan Labbad, received almost £1.6 million last year, triple his pay in 2019, and far surpassing his predecessor's salary. The rise in compensation has raised concerns about the management of taxpayer funds and calls for reform to ensure the income from the crown estate benefits the nation appropriately.

This article serves as an introductory guide to equity compensation plans, particularly addressing common inquiries from founders. It focuses on two essential aspects: types of equity compensation, such as stock options and restricted share units (RSUs), along with their distinctive features and potential tax implications. Additionally, the article emphasizes the significance of establishing a formal equity compensation plan, often referred to as a stock option pool or an equity compensation pool. The allocation of securities in this plan impacts the fully-diluted ownership percentages of existing shareholders and allows corporations to benefit from preferential tax treatment.

The article examines the widening pay gap between CEOs in the S&P 500 and the U.K.'s FTSE 100 from 2018 to 2022. The disparity is primarily attributed to the influence of long-term incentive plans (LTIPs) and pay opportunity levels in S&P 500 companies. Median CEO pay for S&P 500 CEOs has notably increased compared to FTSE 100 CEOs during this period, despite a decrease in the gap in basic salary and bonuses when adjusted for market cap and revenue growth since 2019. Interestingly, both regions have witnessed declines in median vote support levels for say-on-pay proposals, indicating growing investor discontent with executive compensation, irrespective of differences in corporate performance.

This edition of On the board's agenda, in collaboration with Deloitte's Chief Executive Program, examines recent developments in executive compensation practices, addressing challenges related to market volatility and the impact of variations across countries on compensation strategies. With increasing complexity in compensation governance, it is crucial for boards to align pay with shareholder returns, performance goals, and stakeholder interests, while considering factors like DEI and ESG considerations. The discussion also emphasizes the need for boards to strike a balance between short-term and long-term concerns in crafting effective executive compensation strategies.

The article explores the benefits of employee stock ownership plans (ESOPs) and employee ownership trusts (EOTs) as exit strategies for business owners. These models provide tax incentives, address succession challenges, increase employee commitment, and offer immediate purchasers for the company. ESOPs and EOTs differ in how employees receive their shares, but both promote employee engagement and can be advantageous in terms of tax exemptions and deductions.

Read further to examine executive pay in the UK and emphasis the need for constructive dialogue on the topic. It highlights observations on CEO pay trends, suggests practical ideas for improving the current model, and emphasizes the importance of flexibility, trust, collaboration, and principles in driving change. The article aims to contribute to the ongoing discussion and promote changes that foster growth and performance in UK-listed companies.