GEO INSIGHTS

In 2018, New Zealand reformed the taxation of employee share schemes (ESS), but many aspects of the new rules, particularly regarding employer deductions under section DV 27 of the Income Tax Act 2007, have remained unclear. The recent Interpretation Statement 24/07 provides guidance, indicating that while the Australian case Clough v Commissioner of Taxation could influence deductions, it is uncertain whether New Zealand courts would apply it due to differences in statutory frameworks. The statement clarifies that deductions may be available if cancellation payments to employees are tied to past employment services rather than capital transactions, encouraging employers to design their ESS with liquidity events in mind to avoid non-deductible expenses.

Empower has acquired Plan Management Corporation (PMC), the creator of OptionTrax®, a leading digital equity plan administration platform, to expand its retirement and wealth management services. The acquisition will integrate OptionTrax's equity compensation platform with Empower’s financial tools, offering enhanced equity compensation services to both public and private companies. Empower aims to meet growing market demand for equity compensation management, helping employers provide valuable equity benefits to their employees, while OptionTrax will continue operating under the brand "OptionTrax by Empower."

Being AI (NZX: BAI) announced a Share Purchase Plan (SPP) on September 12, 2024, for existing New Zealand shareholders to raise funds for acquiring complementary businesses, developing new technology, and launching Charter school initiatives. The SPP closes on September 24, 2024, with a General Offer for non-shareholders to participate in any shortfall under the SPP, closing on September 26, 2024. Both offers provide detailed terms and participation guidelines through online documents, with flexibility for late applications.

Zoom Video Communications is scaling back its employee stock compensation plan, joining other tech firms like Salesforce and Workday in addressing concerns over high levels of stock issuance leading to shareholder dilution. CEO Eric Yuan noted that issuing large amounts of equity is unsustainable, with plans to reduce stock grants and phase out the performance equity plan over the next two years, substituting some equity compensation with higher cash bonuses. This trend reflects broader industry challenges, as tech firms adjust compensation strategies in response to fluctuating stock values and investor concerns over dilution.

France has introduced changes to profit/value-sharing rules and new ESG requirements for employee savings plans (PEE and PER). From 2025, companies with over 10 FTEs and meeting profit criteria must implement a profit-sharing mechanism, such as profit-sharing agreements, incentive agreements, or value-sharing bonuses, though preferential tax treatment for the Value Sharing Bonus will become more restricted unless paid into approved savings plans. Additionally, from July 2024, PEE and PER plans must offer at least one investment option aligned with energy, ecological, or socially responsible criteria, alongside the mandatory socially responsible fund.

In 2024, Italy saw a surge in the adoption of Broad-Based Employee Share Plans (PADs), with notable companies like Eni and Unicredit implementing them as a form of employee remuneration. PADs allow employees to acquire company shares through purchase or as free gifts, often with incentives like discounts or free shares for those who buy. These plans serve multiple purposes, including attracting and retaining talent, enhancing employer branding, showcasing corporate stability to investors, and fostering a culture of ownership among employees.

Camurus AB announced that 142,300 options from its ESOP 2021/2024 program were exercised in September 2024, generating SEK 37.5 million through the issuance of shares at SEK 263.50 per share. Employees, including the CEO, participated in cashless exercises, selling shares to cover the cost of subscription and taxes. The exercise period for the stock options program will conclude on December 16, 2024.

Capgemini has launched its 11th global employee share ownership plan (Esop), covering 97% of its workforce, including most of its 175,000 employees in India, as part of efforts to align employee interests with company performance. The Esop, offering up to 2.7 million shares (1.56% of outstanding shares), aims to sustain employee ownership at around 8% of the company's share capital, with investment options protecting employees against potential losses during the non-tradable period. Despite a 2.6% revenue decline in H1 2024, Capgemini maintained a 12.4% operating margin and increased organic free cash flow, reinforcing its financial stability as it rolls out this initiative.

Enterprise Management Incentive (EMI) schemes provide significant tax benefits for trading companies with gross assets of £30 million or less, allowing them to recruit and retain employees through share options without incurring income tax or national insurance contributions upon grant or exercise. Companies can grant options valued up to £250,000 per individual, with a total limit of £3 million, while ensuring that qualifying employees work at least 25 hours per week or 75% of their time for the company. However, companies must navigate potential pitfalls, such as changes in control or trading activities, and adhere to strict reporting requirements to maintain the favorable tax treatment of EMI options.