How to set up an international share scheme

Setting up an international share scheme poses many challenges, including language, legislation and technology, says Tom Washington

In today’s world, few things are untouched by globalisation. Greater mobility and advances in technology mean businesses can operate on a truly international scale, and launching a global share plan is a great way to improve cohesion by rewarding staff across the world with the same benefit.

Such a plan can also increase engagement. For example, organisations with several subsidiaries and brands worldwide can use a share plan as a ‘corporate glue’ for staff who may have not previously have associated themselves with the parent company.

Most types of share plan can be expanded or launched globally, but vary greatly in terms of tax and legal complexities. Typically used on an international scale are the UK tax-approved sharesave schemes, share incentive plans (Sips) or free share plans.

Will it suit organisation’s culture?

Iain Wilson, client relationship manager at Computershare, says employers must take care when choosing which type of plan to roll out globally to ensure it suits their organisation’s culture. “In the past, UK-based companies have thought a sharesave plan that is successful in this country, for example, would be OK to roll out globally. But they have then seen huge discrepancies in take-up levels between the UK and abroad, and have not really been sure why,” he says.

If an employer wants to offer all staff access to the same share scheme, regardless of their location and local tax regime, a standardised, simplified umbrella plan can be set up to cover all the countries involved. However, some will try to roll a scheme out on a more granular level, ensuring it has optimum value in each location. So if a tax advantage exists in one particular country, the employer can adjust the scheme’s technicalities to take advantage of it.

But that will take much longer to implement, says Carol Dempsey, a partner in PricewaterhouseCoopers’ (PWC) reward practice. “If an employer is already investing a lot of money in the plan, it may not want to invest further in making it tax-efficient in every single country, which is very difficult.”

Size of local workforce

Employers are inclined to go to greater lengths in countries where they have a large workforce. Many will set a threshold when considering costs, for example, a minimum number of staff that must be based in a country to make it worthwhile to set up the plan. Martin Osborne-Shaw, managing director of Killik Employee Services, says: “If employers look at per-capita cost from a financial perspective, if they have not got many people working in a country, they would probably decide it is not worth it.”

For example, global technology firm Invensys set up its all-employee sharesave scheme only in countries where it has more than 500 staff. It achieved 11% take-up globally, which might seem low compared with most UK schemes. But Cathy Browne, national sales manager at Yorkshire Building Society, says that although the UK has an established culture of people owning shares, this is often not the case overseas. “Share plans are seen as quite scary and are often not understood,” she says.

Due diligence required

When an employer has decided which approach to take, in-depth planning must begin. A great deal of due diligence is required and employers must seek often-expensive advice from global tax, legal and accountancy experts. “One of the key points is to be extremely organised and project management is essential,” says PWC’s Dempsey.

“Employers should start planning well in advance and have a clear picture of everything they must do, together with milestones such as when documents have to be drafted and be approved.”

With any global share scheme, hurdles could arise during this period of planning and research. Some countries have currency exchange control rules in place, making it illegal to move money in and out of the country, which makes it tricky to grant employees shares or options. In such cases, the employer and its share plan administrator must find viable alternatives.

Other than a simple cash alternative, one option is to set up a phantom plan, or allow staff to take advantage of stock appreciation rights. Phantom stock is simply a promise to pay a bonus equivalent to either the value of company shares or the increase in that value over a period of time.

Stock appreciation right

A stock appreciation right is similar, except that it provides the right to the monetary equivalent of the increase in value of a specified number of shares over a pre-set period of time. As with phantom stock, this is normally paid out in cash, but it could be in shares. “The key thing is that, for the individual, it feels exactly as though they are in the share plan,” says Wilson.

Because these plans can involve employees of many nationalities, communication must be considered carefully to ensure good take-up. In some countries, it is a legal requirement to translate share plan documents for participants, but in others, employers can use discretion. In a company where English is the global business language, there may be no need for translation.

But for employers with staff in more far-flung locations, for example a global mining company, reaching out to all employees poses a different challenge. Such employers might need to translate communications and legal documents into several languages and send them out both electronically and physically.

Ben Wells, senior consultant at Buck Consultants, says: “Take-up comes down to how employers communicate it. If they do it well, then staff understand and appreciate the benefit more widely.”

Utilise local champions

To help a share scheme’s cause, employers could also train and utilise local champions. These should be staff who speak the local language, are known by fellow workers, and are motivated and enthused by the scheme. Yorkshire Building Society’s Browne says: “Having a local co-ordinator means there is a point of reference in each country so people can ask questions of someone they trust.”

With the help of their plan administrator, employers must also train local payroll staff in each country operating the scheme who will have to debit cash from employees’ pay each month. Using technology and automated processes to good effect will not only make the payroll staff’s job easier, but will also help to meet the objective of rolling out a benefit that is the same for everybody regardless of their location, the language they speak or their seniority.

Computershare’s Wilson explains: “As soon as employers need to send paper out, [their] UK people get it within 24 hours but [their] people in Belize receive it in three weeks, thus failing in their aim [of offering the same to all]. Distributing communication and enrolment forms electronically reduces the reliance on local payroll people.”

What happens at maturity?

A global share plan launch requires a great deal of time and financial investment, but employers should put an equal amount of effort into what happens at its maturity. A common problem for plans that deliver shares is how participants will be able to exercise them. After all, a certificate for UK share ownership will hold little value for staff in non-UK or US countries with little access to stockbrokers who deal with UK equities.

Some employers choose to set up an electronic nominee in the core country, which helps prevent employees simply selling their shares immediately by offering greater flexibility at maturity. Julie Richardson, head of employee share ownership at IFS Proshare, says: “Instead of the employee holding the shares in their own name and having a paper certificate, a nominee account would hold the shares in an unrestricted pot and, when the shares mature, the individual can contact the broker to do what they want with them.”

There are clearly plenty of obstacles for employers to navigate when launching a global share plan, not least the financial and time commitment. But if each component is managed to suit the organisation’s aims, there is no better way to help an international workforce focus on the same goal.

Case study: Shell plan is well drilled

When Royal Dutch Shell launched a global employee share purchase plan, it attracted more than 12,200 staff saving in 36 currencies across 51 countries.

Pam Roffe, manager, share plans, says a key message at Shell has been to eliminate unnecessary work, and to standardise, simplify and automate. This included the share plan.

“The previous share plan design was hideously complicated,” she says. “This made it really difficult for the administrators to operate and for plan co-ordinators in Shell locations to understand.

“We had dug ourselves into a hole by trying to be all things to all people. Managing tax-approved share plans when [mobile workers] were coming in and out of the country was horrendously complicated.”

The company centralised most of the payroll operations around the share plan, taking work away from the local operating units. “That took out a lot of the activity and therefore standardised the approach globally,” says Roffe.

The company also removed all non-electronic communication processes. “In the past, we used to send a pack to a local scheme co-ordinator and ask them to distribute it, but now we know we are hitting the 45-50,000 people we want to invite.”

Case study: Catlin ensures high take-up

Insurance company Catlin extended its employee share scheme in September last year to include staff in Bermuda, Germany, Canada and Singapore using its UK sharesave model as a global template.

The firm, which employs 1,300 staff globally, previously offered a sharesave (save-as-you-earn) scheme to 699 UK staff and a stock purchase plan to 273 US staff.

Charlotte Abbasi, head of compensation and benefits at Catlin, says the company’s main focus was to ensure there was no risk to employees’ savings. “We did not want to run a phantom plan because we wanted staff to actually have the chance to buy shares, but we chose the [sharesave] design so people could participate without suffering an exchange risk on their savings.

“We take employees’ savings on a monthly basis, hold it in local currency, and if the plan proves unattractive in three years due to exchange rates or share price, they are able to take their money out. If the share price has gone up, they are then, at that point, able to transfer their money and buy the shares.”

Because of the time and cost involved in expanding the scheme, it was limited to countries with 40 or more employees. Take-up was much higher than expected, with Bermuda (73%) proving the most successful location, followed by Germany (68%), Singapore (57%) and Canada (27%).