Due to the sensitive nature of the arrangements administered by Ogier Employee Benefits Team, client details must remain confidential; however the following are representative of the new work taken on in the last 12 months.
Carried Interest And Co-Investment Incentives
The continuing growth in the funds industry, both in Jersey and in other offshore jurisdictions, has resulted in a very competitive employment market in this industry. Many new incentive compensation arrangements are centred on meeting this need.
We currently manage several schemes of varying complexity, where the carried interest in fund structures or co-investment into fund investments is delivered in such a way as to provide an exceptional incentive for the fund's management and advisory teams. These incentives are delivered through trust, company and partnership arrangements and can be tailored to meet each client's needs.
These arrangements can also be structured to include standard cash based employee benefit arrangements as a means of delivering discretionary bonuses to executives of companies and partners in a partnership.
Share ownership schemes assist start-up companies in attracting and retaining key executives with relevant industry experience by affording them the opportunity to participate in the growth of the company's share price. Company's at this phase in the corporate life cycle are often unable to provide large cash incentives and surplus cash is productively re-invested in the business rather than paid to employees in traditional discretionary bonuses.
The structure affords joint participation in the company's equity for the employee and the employee benefit trust. The employee participates in the growth in share value, whilst being bound by certain trigger events that are designed to retain, motivate and stretch the company's management team.
The structure meets the company's need to attain aggressive growth targets, whilst retaining key executives and provides a tax efficient incentive mechanism for delivering equity participation as part of a competitive remuneration package.
Cash Deferral Plans
Cash based incentive plans remain very popular with the UK financial sector, where the traditionally high discretionary bonuses are paid. After the legislation changed in November 2002 to disallow corporate tax deductions for contributions to employee benefit trusts, companies largely decided to fund the trusts at a rate that achieves the same net cost as paying a cash bonus.
Cash deferral trusts such as these provide very strong retention and incentive tools for employers and allows employees access to the trust assets through loans as well as the ability to recommend investment strategies to the trustees. Investment is very tax efficient in the trust if managed correctly and employees are able to benefit from the tax free roll-up of both capital and income gains within the trust.
A corporate tax deduction is generally achieved on distribution of trust assets to employees where the distribution triggers payroll related taxes.
Following the changes to the UK pension legislation and A Day in April 2006, the traditional offshore pension plans became less attractive as a means of delivering high value compensation packages in an HMRC approved pension arrangement.
Clients have benefited from enhanced remuneration planning in the form of a hybrid between the traditional UK pension plan and the cash based employee benefit trust. The benefit to employer and employee alike resides in the ability to provide high value compensation in a pension arrangement that is recognised by the UK pension legislation, but provides a more flexible remuneration strategy.
Private companies often have the problem of an illiquid market for trading shares. An employee benefit trust can assist in creating a market for a company's shares as part of a share incentive scheme.
The trust fulfils a dual role in addition to the share incentive arrangement. The trust can both create a market in the illiquid shares as well as hedge the company's exposure to its own share price prior to awards vesting, by holding shares in the company.
The delivery of value to participants is therefore capped at the value of the initial shares contributed to the trust and those shares can be "traded" between employees within the trust should an employee leave the company's employ and the articles forbid the holding of shares by ex-employees.
Due to increasing demand from our share plan clients, we have developed a Corporate Nominee arrangement to compliment the overall share plan service that we offer. This enhanced service is designed to facilitate the continued holding of shares outside of the share plan rules post vesting on behalf of the employees or ex-employees in a nominee capacity. Participants therefore need not have their own brokerage account in order to continue benefiting from the uplift in share price where the decision to sell shares is delayed for any period of time. Ogier have partnered with a custodian and brokerage service for this purpose and we offer the administrative services of tracking share holdings and instructing share sales to the brokers. It is also possible for individuals to contact the brokers directly to discuss the manner in which shares are to be sold.
This is a value added service that works well for share plans where there is no immediate requirement for shares to be sold on vesting or where the company may have ongoing sale restrictions for shares held by senior executives.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.