GEO INSIGHTS

The article discusses Geneva's evolving tax practices regarding employee stock and option grants, focusing on startups and SMEs. These incentive programs play a crucial role in attracting and retaining talent, and their tax treatment varies, ranging from tax-free capital gains for employees to fully taxable salaries upon exit. The recent practice in Geneva allows valuations as substitutes for FMV, offering tax-free capital gains and enhancing the benefits of share plans for early-stage startups and SMEs without imminent full exits.

The study explores the impact of a pay restriction on CEOs of centrally administered state-owned enterprises in China, showing significant pay reductions for CEOs in these firms compared to unrestricted counterparts. In response to the pay cut, CEOs in the affected firms increased their use of perks and diverted company resources for personal benefit, leading to a decrease in pay-performance sensitivity and a drop in overall firm performance. The findings serve as a cautionary note against limiting CEO pay, as it can distort incentives and have unintended adverse effects on the companies' 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.

ESOPs and RSUs have gained popularity in India, especially in start-up jobs, and international companies with employees in India also offer these employee benefit plans. ESOPs allow employees to own equity shares of the employer company over time, and the taxation of ESOPs occurs at two instances: at the time of exercise and at the time of sale by the employee. The taxation rules differ for listed and unlisted shares, and other factors such as the residential status and disclosures also come into play in determining the tax implications of ESOPs.

This research investigates the correlation between government-controlling ownership and CEO compensation incentives in China. The findings indicate that government control diminishes CEO pay-performance sensitivity (PPS), resulting in a 6% lower PPS for CEOs in state-owned enterprises (SOEs) compared to non-state-owned enterprises (non-SOEs), representing an average 14% reduction in PPS. This effect persists even during privatization, when firms transition from government to private ownership. Moreover, the negative impact of government controlling ownership on CEO incentives is more pronounced in SOEs with higher government ownership or lower hierarchy government control.

The recent alert informed companies about the increase in Tax Collected at Source (TCS) rate to 20% for overseas remittances of participant funds in India, starting from 1 July 2023. However, following concerns from businesses and residents, the Indian Ministry of Finance made last-minute changes, including restoring the annual threshold of INR 700,000 and delaying the implementation of the 20% TCS until 1 October 2023 for individuals exceeding the threshold.

This article emphasizes the importance of developing a comprehensive compensation plan that goes beyond salary to attract and retain top talent. It provides guidance for small business owners and HR managers on designing a competitive compensation plan that includes elements such as benefits and equity-based programs, highlighting the benefits of a well-structured plan in supporting business strategy, recruitment, motivation, and market competitiveness. The article concludes with recommendations on creating an outline, appointing a manager, determining a philosophy, setting pay rates, establishing career advancement opportunities, finalizing policies, gaining leadership approval, implementing a communication plan, and monitoring the plan's effectiveness.

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.