Natural gas giant BG Group places a high reliance on its share options where the cross-border tax implications mean that scheme admin needs precision detailing, says Debbie Lovewell
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BG Group’s surroundings appear to have rubbed off on it. Judging from the lengths some departments within the firm have gone to replace traditional ways of working with automated systems, neighbouring technology firms such as Microsoft and Oracle in Reading’s Thames Valley Business Park may have had a subconscious influence.
We are frequently told that an organisation’s benefits package has to tick all the right boxes if it is to win staff approval, improve recruitment and retention or boost engagement and productivity. So it is little wonder that many bosses are quick to shout about the marvels of their scheme.
In comparison, relatively few employers are willing to share tales of behind the scenes action, particularly when working on a process that employees will never directly see. BG Group, however, has done just that and judging by its results, spending time perfecting the processes behind the benefits scenes can pay off just as much as introducing shiny new perks.
With around 60% of its 5,000 employees based in over 20 countries outside of the UK and a growing number of staff working outside of their home country, BG’s benefits systems have to be geared up to cope with cross-border issues such as differing tax regimes. Nowhere is this more apparent than in its share option scheme. An employee with share options, for example, may have been working in a variety of different countries for up to ten years. If they make a gain when they exercise the option, there could be payroll withholding tax due. Siobhain Whitty, HR manager, explains: "That might be in any of the countries that they’ve worked in or were on assignment in during the life of the option. It might be back in the home country and, in addition, there might be taxes due in overseas jurisdictions even if an employee has since repatriated back to their home country. On top of that, you’ve got corporate tax issues so it’s a complex area."
The complexity of share plan tax issues first came to light following the demerger of BG Group and Lattice Group, which prompted a review of the company’s share schemes. "We’d granted options under British Gas, but we haven’t granted options under BG Group for very long so we haven’t got a vesting history and we haven’t got an exercise history," explains Whitty. BG first granted options in November 2000 so the first time that the majority of employees could exercise their options was November 2003.
Previously, BG had carried out tax calculations manually, but increasing numbers of internationally mobile employees meant that this wasn’t considered to be a viable long-term solution. In its place, BG looked to install an automated system. "During 2004, for example, our global employee numbers saw a net increase of over 10% and we expect that trend to continue. So any tax calculation solution that we chose would have to be absolutely key to ongoing compliance and it had to be robust for years to come. We wanted to have an automated solution in place as soon as possible so that the admin behind exercising grants was more effective than it [had been]," she says.
"Manual calculations [and] manual checking are always there as a back up, but with such a complex set of data to have to manage in order to produce these calculations, it was never going to be a sustainable option to continue with manual calculations," says Whitty.
Working with external partners Ernst & Young and Killik Employee Share Services, BG set about building a system that met its criteria. To add a further twist to the project, they set themselves a tight timescale to complete the project as close to the options’ second vesting as possible in November 2004.
The result was an automated system known as a stock mobility solution. "What [it] does is calculate, tracks and monitors withholding tax on share options for internationally mobile employees. Put simply, it works by taking details of an employee’s share option exercise, bulking that onto their mobility history and then, using both those pieces of information, calculates any tax withholding due in the countries where the employee has worked against an agreed set of tax parameters. So it looks at what the tax should be, looks at the personal circumstances of the individual and then produces the calculation," explains Whitty.
With three organisations working together on the project, in addition to several departments within BG itself, teamwork and communication were vital to the system’s successful implementation. "All three parties had not worked together before on a project like this so Ernst & Young were learning about BG and our share schemes. Killik were learning about BG and at the same time taking on our administration. We made a point of sharing any concerns because that was the way we could really get to the bottom of any problems or issues that had arisen. When you’re dealing with a lot of technical data, it’s really important you don’t let anything slip because one small calculation error or apparent error could actually have been indicative of a bigger problem. So everyone was encouraged to raise everything. You’ve really got to say what you feel and bring up whatever is bothering you because otherwise something very important might slip."
The nature of the calculations also meant that accuracy was essential, so communication was vital to ensure the data remains correct at every stage of the process. "This was not a project where there was any scope for revisiting or tweaking in the future. The accuracy of calculations was vital from the outset so we had to make sure that we paid a lot of attention to the detail to make sure we got all the underpinning data and processes working properly."
To ensure that the team does not become complacent with the results of the new process, the data continues to be regularly checked. "We’ve maintained a 10% check of every calculation and every new country combination that arises so if an internationally mobile employee exercised an option and the combination of countries they had been through was new, those in addition are being checked by Ernst & Young to check everything is looking ok."
Now that the firm has had a chance to familiarise itself with the system, it is looking to extend it further. BG Group also offers operates a share incentive plan (Sip) and long-term incentive plan (L-tip) for staff, which it hopes to extend the system to cover. "Again, internationally mobile employees receive these shares and at the point they are transferred into their names either through L-tip vesting or through employees being able to take free shares out of trust after a holding period, the same principles apply and there may be tax issues for the individual and the organisation," explains Whitty.
And with proven cost savings of over 60% on each calculation, it just goes to show that building a strong stage behind the proverbial benefits scenes is every bit as important as what goes on in front on the curtain.
During her 15 years in HR, Siobhain Whitty, HR manager, has experienced a wide variety of roles. Working in both the public and private sector, she has undertaken generalist positions and more specialist roles.
BG Group is her first foray into the private sector, a move which Whitty decided to make in order to broaden her career experiences. "The opportunities [in the public sector] for developing your career, for me at the time, were very good but I wanted to complement my exposure to the public sector with some private sector experience. I wanted to ensure that I had both options open to me down the line and, in particular, to get some experience of working in an international company as well. The reason I came to BG was that the role I was first offered enabled me to consolidate all that I’d done in the civil service but with the added dimension of expatriate management, which was terrific because that was my learning curve."
The demerger of BG Group and Lattice Group in 2000 in particular threw up a whole new set of challenges. "The biggest challenge was the compensation and benefits role because I had comparatively little knowledge and I was asked to join the team that addressed the issues we faced from a compensation and benefits perspective at the [time of the] demerger."
But after seven years with the organisation, Whitty is ready for a new challenge and is relocating to one of BG’s international locations. However, she is keeping her feet firmly in the HR field. "HR’s definitely my thing at the moment. I enjoy the challenges and the variety that people throw at you," she explains.
Pension: Defined benefit scheme for all employees. Varying employer contribution levels.
Healthcare: Private medical insurance, personal accident insurance and employee assistance programme for all staff.
Holiday: 28 days standard.
Company car: For middle management and above. Cash option also available.
Sport/social club: Subsidised activities for staff. On site gym and subsidised restaurant at head office.
Share schemes: Long-term incentive plan, sharesave scheme, share incentive plans and share option awards.
BG Group at a glance
BG Group’s history can be traced back nearly 200 years to the Gas Light & Coke company, which was established in 1812. In 1948, the gas industry was nationalised in the UK and was divided into 12 Area Boards, which were run by the Gas Council. This was replaced by the British Gas Corporation in 1973, before British Gas plc was formed in 1986 when the industry was privatised.
BG Group has existed in its current form since 1997, when British Gas shareholders approved the demerger of Centrica from the Group and British Gas was renamed BG plc. Two years later, a financial restructuring resulted in the creation of BG Group as the firm’s parent company. And in 2000, Lattice Group and BG Group demerged.
The firm’s work now concentrates on the exploration and production, transmission, distribution and supply of natural gas to industrialised and developing countries.
It is now active in more than 20 countries worldwide and has just over 5,000 staff, 60% of which are based outside the UK.
Employee case study:
Bill Adamson is BG Group’s vice president and general manager, north west Europe downstream. After 38 years with the company, some of which were spent under the guise of its predecessors, he believes it is important to look at the reward package as a whole.
"One of the problems is sometimes people start to take elements in isolation and compare with other companies. I would say that the BG package for me is good in a number of ways. One of the things that’s really important in a company like ours, particularly as we compete for talent with our peers, is a defined benefit pension scheme and I think people now are just so aware of the pension scheme and the pensions crisis that is looming that if you talk to even the young people coming into the company, they are well aware of that benefit."
He also values the number of opportunities for staff to become shareholders in the company through its range of share plans. "Certainly with our share price rise over the last two years, they are more and more valued. These things do go in cycles but now people are seeing some movement in the share price, they have realised what a powerful tool this is."
The level of flexibility in BG’s benefits package also holds a particular appeal. "There are quite a few things in there where you have personal choice rather than the company saying ‘we know what’s best for you and therefore this is the benefit you’re going to get’. I think that’s quite important and gives you a feeling that you’re actually, to a measure, in control of your own reward package."