Global Share Plans: Issues for Multinational Employers (Portfolio 322)

Description

Around the globe, employees often regard the opportunity for share ownership as an attractive part of the compensation package. Employers may be eager to include worldwide employees in joint ownership of the enterprise. Global companies have many reasons to launch a global share plan — such plans motivate employees, link awards to performance, offer substantial tax and accounting advantages and allow the employer to offer a competitive incentive package to attract and retain employees. Offering local business management the opportunity to participate in a company share plan recognizes the contribution of the local division to the overall results of the organization. In addition, compensating with shares conserves the employer’s cash, and for companies with tight cash flow or start-up employers, cash-saving might be the most important reason to provide a share plan.

Exporting a share plan, however, to reach a global workforce is not an easy task. There is an array of obstacles to address. In addition to the practical difficulties of many locations, payroll systems and time zones, there are other hurdles to overcome. Various local tax, legal and regulatory burdens, not to mention cultural and organizational issues, can make providing a seemingly desirable employee incentive opportunity feel like a herculean project.

Any approach to global compensation involves first and foremost a company decision regarding the appropriate balance of global standardization versus localization of incentive design. Both of these conflicting employer desires are valid and important goals. But the approach for each employer will involve a careful balancing of employee needs, employer’s global goals, administrative burdens and local laws. The arguments for global standardization include a desire for all employees to have the same incentives because they share the same corporate values and standards, but on the other hand, of course, the advantages of localization include a recognition that each market needs flexibility to tailor the right incentive package to attract and retain a local workforce.

U.S. companies that export their U.S. share plans sometimes find that the U.S.-style purchase plans or stock options are managed in a way that is inconvenient for the employee or that does not consider local issues, thereby detracting from the value of such plans. Or, they find that some employees are not ready to assume investment risk or do not understand the tax implications, which creates an immediate and important need for proper participant education and communication. These issues devalue the share awards in a way that may be hard to calculate with precision; however, they most certainly dilute the incentive value that the employer desired to provide globally.

As challenging and complicated as it may be to roll-out share plans to many different locations, the issues become even more complex when participants are globally mobile and operate in different parts of the employer’s worldwide operations — working in one location for a few years, then returning to a home country or transferring to another subsidiary in a different country.

Complexity alone should not be a barrier to implementing a program with positive results. This Portfolio provides a road map to identify the key issues to launching and maintaining a global equity plan. It shows an employer how to approach the global plan with an orderly review of the issues that will need to be addressed. This Portfolio does not provide a country-by-country list of local laws and compliance practices. Rather, the Portfolio and related Worksheets provide a framework to approach a global share plan initiative and to execute the project with minimum surprises.

Table of Contents

I. Who Is Subject to U.S. Tax? Identifying U.S. Taxpayers
II. Offerings of Share-Based Compensation to U.S. Employees by Non-U.S. and U.S. Issuers
III. Expanding U.S. Plans to Cover Non-U.S. Participants
IV. Mobility and Double Taxation of Equity Income
V. Global Employee Stock Purchase Plan Offerings
VI. Deferred Compensation Issues Under §457A
VII. Clawbacks Outside of the United States
VIII. Non-U.S. Corporate Tax Deductions for Equity Costs