What to keep in mind when issuing shares
The rules and compliance required to implement and manage many schemes can be complex, time consuming and risky for the company and employees concerned. Financing arrangements often require the involvement of external financiers, which adds a new level of complexity to these transactions.
Hence, extensive management involvement is required to manage and administer such strategies.
Like the hidden 90% of an iceberg, the complexities of designing and implementing effective share incentives, can pose significant challenges to uninformed or unprepared company executives, boards and shareholders. Many CFOs implement a share incentive structure on their own. Whilst not beyond the technical competency of Chartered Accountants, the ramifications of a share incentive structure are often not considered by most CFO’s as they are not encountered during one’s early career.
The following tips are offered to executive teams wanting to introduce share incentive structures, based on our extensive experience in designing and implementing such structures:
Involve an independent expert in determining the value of the share incentive structure concerned. An independent professional is necessary when determining the value of a company’s equity as well as complying with sections of the Company’s Act, JSE regulations and relevant tax legislation.
Make sure that the scheme implemented can accommodate changes to the staff complement, that is, new joiners and employees leaving.
Consider the practical implications of potential growth, as well as possible contraction in the company fortune, for both the company and the employees concerned. Be prepared to engage vigorously with employees if circumstances deviate from the plan!
Consider what possible transactions involving the company’s equity during the lifetime of the structure will have on such a transaction and the participants of the share incentive. This may form an important part in the negotiation process.
Always consider the tax consequences!
Given the time, complexity and risk for the company and employee concerned, it is strongly suggested that companies engage the services of experts in this field.
With a long and deep experience in designing and implementing share incentive schemes, we would welcome the opportunity to discuss how we can assist you in implementing a sound incentive strategy within your company.
Here to help
We are a professional services firm, able to solve out of the ordinary business challenges and opportunities. Managing the entire transaction process, we ensure that clients are successfully guided through the complex and often risky environment of corporate finance, legal, governance and tax issues.
If you wish to explore this topic in more detail, please contact us.