IDS HR Study 840, February 2007

Share incentive plans

• Describes the different types of shares available through SIPs
• Sets out the key HMRC requirements, including annual savings limits
• Highlights the tax advantages for employers and employees
• Summarises the rules on eligibility, forfeiture of shares and the use of performance criteria in allocating awards
• Gives details of the SIPs in operation at 30 named companies

The share incentive plan (SIP) is an all-employee scheme that offers tax breaks for employees holding shares in the company for which they work. The legislative and tax approval framework that defines SIPs gives companies considerable flexibility to set up a plan that suits their business requirements.

A key feature of the SIP is that it can be tailored to include either or both free and employee-purchased shares. What is more, free share awards can be linked to company, team or individual performance. Employers can also encourage participation by matching shares purchased by employees.

This HR Study takes a detailed look at the extent to which 30 companies offer the three main types of share available through a SIP – free, partnership and matching shares. It analyses variations in savings arrangements, matching ratios for employee-purchased shares and company policies on forfeiture and the reinvestment of employees’ share dividends.