10 June 2020

Background

The International Corporate Governance Network (ICGN) is an investor-led organisation, aiming to promote effective standards of corporate governance and investor stewardship. We previously reported on the ICGN’s open letter to “corporate leaders” here, covering their views on governance priorities.

The ICGN have now published their latest ‘Viewpoint’, focussing on how companies should approach executive pay in light of the Covid-19 pandemic.
 
June Viewpoint 
 
In their latest Viewpoint, the ICGN have highlighted the important role of effective remuneration policies and practice, when navigating the challenging global circumstances. Whilst the ICGN intend to publish a more detailed Viewpoint in the future, they have set out three immediate areas of focus for companies: 

• Quantum: With vast numbers of people out of work, and entire sectors shut down, companies should expect greater scrutiny of their executive compensation. Companies should pay increased attention to the quantum of executive pay in light of the Covid-19 pandemic, with particular regard to the question of fairness. Those who choose to maintain or increase executive pay, in the present circumstances, could greatly harm their stakeholders’ trust and motivation. 
• Structures and metrics: The ICGN have emphasised the important debate surrounding metrics for long-term incentives, in light of the current pandemic. The ICGN acknowledge that it is not easy to set appropriate multiyear targets for long-term plans - for some companies, short-term financial measures may well be obsolete. Companies should, however, consider environmental, social and governance (ESG) metrics, when structuring long-term incentives for their executives. Companies should also be minded to look beyond the current pandemic, when considering relevant ESG factors, with a focus on long term sustainability (and in particular, the climate crisis).
• Employees, stakeholders and sustainable management: Finally, the ICGN have highlighted increased connections between executive pay and the health and safety of employees and other key stakeholders. Companies and their executives should take responsibility for the fair treatment of employees, suppliers and customers. Sustainable management in this difficult period can be enhanced by focussing on long-term measures, strong corporate culture and keeping staff informed. 

Tapestry comment 
Whilst not setting out a formal position of the ICGN, these Viewpoints remain a helpful tool for companies to consider when reviewing their approach to executive incentives. The full Viewpoint includes several useful engagement questions, concerning incentive structures in light of the pandemic. It would be sensible for companies to ask themselves these questions, in light of their current approach to executive incentives. 

In these challenging times it is often difficult to look too far forwards, however, the ICGN has set a clear focus on long-term measures and enhancing sustainability. There is a clear view that any increase in quantum will face judgment. In the current crisis, excessive awards and inappropriate short term metrics will be subject to increased scrutiny. Companies should also remain mindful of the increased connection between their executive pay and the treatment of their employees and other stakeholders.

The ICGN have set out their intention to publish a more detailed Viewpoint “soon”. We will keep our eyes out for this and will ensure you are kept up to date with any relevant points.
 
If we can support you in considering any of the points in this alert, or with any of your incentives and remuneration issues during these challenging times, please do contact us.  

Carla and Tom

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10 June 2020

HMRC this week published its newest and much awaited Employment Related Securities bulletin here. This bulletin is the latest in a series of updates and details HMRC’s proposals for managing the impact of Covid-19 on share plans and share plan filings with HMRC.

Sharesave / SAYE (Save as You Earn)

The bulletin addresses the impact of placing Sharesave participants on furlough or unpaid leave:

• Payments made to furloughed employees under the UK Government’s Coronavirus Job Retention Scheme (CJRS) arrangement can constitute salary for SAYE purposes, and SAYE contributions can be deducted from those payments.
• If employees have taken unpaid leave, HMRC will permit their monthly SAYE payments to be made via standing order rather than a salary deduction. 
• Individuals may choose to take an extended holiday from their savings contracts without terminating their SAYE savings contract (and therefore triggering lapse of their options). Currently the SAYE rules only allow a payment holiday of up to 12 months. Under this new concession, provided the reason for the delay is related to coronavirus, HMRC state that the 12 month limit will not apply (however note that the maturity date will be pushed back by the total number of months missed). The bulletin notes that all employees with a savings contract in place on 10 June 2020 can delay the payment of monthly contributions beyond 12 months in these circumstances.

This is welcome but the scope of how the concession will work is still unclear. More detailed updates are due to be published in the coming days as to how these changes will work in practice.

SIP (Share Incentive Plan)

As with Sharesave, if SIP participants are furloughed, payments made under the CJRS arrangement can constitute salary for SIP purposes, and SIP contributions can be deducted from those payments.

SIP participants are already permitted to stop their deductions from salary under the general SIP rules. This bulletin confirms that if they do so, they will not be allowed to make up missed contributions.

Company Share Option Plans (CSOP)

HMRC has confirmed that if employees (or full-time directors) are furloughed because of coronavirus, this will not be treated as a disqualifying event, and the individuals will continue to be treated as employed by the business for CSOP purposes.

EMI (Enterprise Management Incentive Plans)

EMI valuations will now be valid for an additional 30 days in addition to the existing 90 days, provided there have been no material changes to the factors used to determine the valuation during that time.

HMRC is still considering the impact on this type of plan, and further information will be published in due course.

Filing Deadlines

HMRC have again reiterated that filing deadlines will not be extended. However the bulletin does comment that coronavirus may potentially be treated as a 'reasonable excuse' for late filing. 

HMRC Contact

HMRC have requested that enquiries are submitted by email rather than post, but have confirmed that postal enquiries can still be received. 

Tapestry comment 
Many employees across the country have either been furloughed or have taken a period of unpaid leave. For businesses operating a Sharesave, SIP or CSOP, this bulletin is a welcome confirmation that these individuals are still able maintain their participation in these share plans if they wish to do so. The payment holiday extension concession and the helpful approach to alternative payments are particularly welcome for Sharesave plans. We always say this, but the devil really is in the detail and the Sharesave change is no exception to the rule. Existing Sharesave plan terms should be checked to see whether and how the new payment holiday rules can operate in practice, and employee facing guidance will need to be updated too. The update is also light on detail and the scope of exactly when they can be relied on is yet to come; care will be needed when relying on the revised rules! Please do let us know if we can help with this.

Sadly, however, there is no equivalent concessionary treatment yet available for SIPs in light of the pandemic.

It is also noticeable that the EMI valuation concession appears to apply to EMI valuation applications only, and not to valuation applications under other tax advantaged plans such as CSOP or SAYE. 

Finally, and as predicted in the Tapestry bulletin last week, HMRC have not extended the filing deadline for share plan reporting, and the 6 July deadline remains. However the bulletin does allow for the possibility of a late filing excuse resulting from coronavirus (although it should be noted that this is not an automatic excuse, and would still need to be proved).

Sarah and Chris

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29 May 2020

Background
 
Under Polish labour law, for each employee the equivalent of 80% of the statutory minimum net remuneration must remain free from any wage deductions. This rule must be considered when calculating the level of salary deductions that can be taken from Polish employees and used in relation to an incentive plan e.g. contributions used to purchase shares on behalf of employees.
 
Legal update
 
As part of a legislative package adopted recently by the Polish parliament to soften the economic impact of COVID-19 on employees, the amount of remuneration that must remain free from deductions has now been increased for certain employees who, as a “result of measures adopted in Poland to prevent SARS-CoV-2 infections”:

• have been subject to a reduction in salary; or
• have a family member that has lost their source of income.

For affected employees, the amount of remuneration that must remain free from deductions has been increased in either case by 25%. A further 25% increase is then applied for each employee’s family member who does not have any income and who is economically dependent on the employee. A ‘family member’ includes a spouse / co-parent of child and children.

As an example: if an employee has two children who are economically dependent, and the employee’s spouse loses their job due to COVID-19 measures, there will be a 75% increase in the amount of the employee's remuneration that must remain free from any deductions.

Tapestry comment 
The new rules mean that the amount of employee salary deductions that can be taken in relation to incentive plans could be restricted much further at the moment.
 
The new limits are complicated and individual employee circumstances will vary greatly, so proper consideration must be given when calculating any salary deductions - before the deduction is made. The new rules will affect low-paid employees the most, particularly if their family members have suffered a job loss due to COVID-19 or where they have several financially dependent family members, even if their own salary has not been reduced.
 
Local counsel advises it is not currently clear when the Polish authorities would consider that a reduction in salary / income loss is clearly due to measures to ‘prevent’ COVID-19 infections, rather than measures that may have been taken e.g. to counteract economic slowdown. Until further guidance is given by the Polish authorities, local counsel recommends it is sensible to apply the rules conservatively.
 
If you have employees in Poland and you are taking deductions from their salaries for any purpose in connection with incentive plans, then you should consider how you will work with HR and your employees to identify whether and when the rules apply, and how to calculate the new applicable limits going forward.
  
Thank you to our Polish local counsel Sołtysiński Kawecki & Szlęzak (SK&S) for updating us on the new rules.

We have been updating you each week with COVID-19 related global alerts. As business is starting to show signs of returning to a new normal in some countries, going forwards we will continue to keep you updated with changes fortnightly, or as and when we hear of them.

If we can support you with any of the points in this alert, please do contact us.  

Sally, Emma and Sonia

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22 May 2020

We hope you and your families are staying well. 

As promised in our previous newsletter, each week we will be sending a COVID-19 Catch Up up of key global developments on incentives to help keep you as up-to-date as possible, and it's that time again... 

COVID-19 Catch Up: 

Bulgaria - Tax reduction
There is a 5% deduction on personal income tax if tax is reported and paid by 31 May 2020. 
Tapestry Comment
This deduction is a very helpful benefit to individuals who are due to pay their taxes whilst trying to reserve cash. This deadline is very imminent, so those wishing to benefit from this deduction should be prepared. 

New Zealand - Deferral of tax filing
The Inland Revenue have provided updated guidance for businesses, stating if a business is unable to pay taxes on time businesses can get in touch when they can to have any penalties and interest written off. 
Tapestry Comment
This understanding by the Inland Revenue that companies not only may be struggling to pay taxes on time, but may also be struggling to reach out and discuss this, will be a great relief to New Zealand businesses. It is not yet clear whether there will be a cut off date for doing so, though we expect this will be the case. Companies should therefore continue to make filings if possible, and explain this as soon as feasible if they cannot to ensure they are caught by this updated guidance. 

Portugal - Furlough support
Employees whose children have been affected by school closures can be absent from work and claim an allowance corresponding to two-thirds of their basic remuneration. The minimum guaranteed monthly remuneration is EUR635 and the maximum is capped at EUR1,905. The employer must pay 50% of this remuneration. For public sector employees, the employer must pay 100% of this remuneration.  
Tapestry Comment
As schools have closed globally this has put a lot of pressure on parents trying to work from home whilst home-schooling and taking care of their children. Allowing parents the flexibility to take this time away from work to focus on their children during this uncertain time, without worrying about not receiving pay, will hopefully be a weight lifted for parents. Companies should think, however, whether these employees would still be eligible for any employee share plan whilst taking this period of leave. 

The Tapestry Team are always available if you would like to speak to us about any of your countries and operating your share plan globally during this time, so please do get in touch.

Team Tapestry

22 May 2020

HMRC has this week published guidance regarding its approach to employees waiving entitlement to income.

The guidance is a summary of the existing law and it does not offer any explicit additional concessions in HMRC’s approach. HMRC say they are keen to support people who choose to waive - or give up – part of their income to support their employer or to make a charitable donation. The support is so far limited to this guidance to ensure these people understand the tax implications of waiving their income. The “new” guidance is summarised below.

 Waiving salaries or bonuses
 
If an employee and their employer agree to reduce the employee’s entitlement to any salary or bonus and receives nothing in return, then no tax or NICs will be due on the amount given up, provided that the agreement to reduce the salary/bonus is entered into before the payment was due to be paid.

If instead the bonus is waived after it has become due, or if salary is returned to the business after it has been paid, the waived amount will still be subject to income tax and NICs.

However, HMRC re-stated that it is not possible to claim back income tax and NICs that would already have been deducted from the salary or bonuses on payment.

Waiving dividends

If a shareholder waives their right to receive a dividend, then no income tax will be due on the amount given up, provided that a formal deed of waiver is executed and witnessed before the shareholder becomes entitled to receive the dividend (that is, before the dividend is formally declared and approved by the company). 

Charitable donations
 
In this guidance, HMRC also re-stated the tax treatment of making donations to charity via: 

• payroll giving arrangements, in which case the donation is not subject to income tax but is still subject to NICs; or
• using gift aid, in which case the donation is made out of post-tax salary, but the payment will be eligible for income tax relief.

Tapestry comment 
The pressures of Covid-19 have meant that many businesses have already implemented some form of salary/bonus reduction, or may be considering this action. This publication provides welcome guidance regarding the current tax position of such waivers, but disappointingly does not offer any additional exemptions or concessions in situations where the waivers take place after the strict deadlines for tax to arise. It also does not offer any relaxation of rules relating to recovery of income tax and NICs after they have been paid. It does  at least indicate a more positive approach by HMRC to salary and bonus waivers generally, and it is interesting to note that HMRC specifically requires the use of a deed for dividend waivers, but makes no such explicit reference for salary and bonus waivers in this guidance.

The guidance is also high level and the devil, as ever, is in the detail. The rules regarding the date on which an individual becomes entitled to an amount of employment income can be complicated, particularly in the case of directors.  In addition, these rules apply only where the salary is waived and the employee receives nothing in compensation for that reduction.  If the employee receives other benefits (e.g. non-cash benefits or increased holiday allowance) or if the employee agrees that the payment should be diverted to a different cause (e.g. a charity) rather than being waived, then the treatment set out above may apply differently.
 
If your business is considering taking this course of action we recommend that advice is taken prior to implementation. HMRC (so far) are not offering any new concessions to waiving salary or bonuses and a general statement of “support” offers little practical reassurance. It’s really important that businesses ensure they are compliant with the income entitlement and payment timing rules to avoid unexpected tax and NICs charges.

If we can support you with any of the points in this alert, please do contact us.

Sarah Bruce and Chris Fallon

15 May 2020

We hope you and your families are staying well. 

As promised in our previous newsletter, each week we will be sending a COVID-19 Catch Up up of key global developments on incentives to help keep you as up-to-date as possible, and it's that time again... 

This week, we have particularly noticed a shift in the global footprint of some companies’ workforces. Whether this is a result of a new virtual workforce, a forced shift in site location, or an acquisition - you may now have employees in new or different countries (or states), bringing fresh considerations to the global operation of your share plans. If any of your jurisdictions are not covered by our weekly updates, please do let us know if we can help. 

COVID-19 Catch Up: 

Hong Kong: Tax reduction
Subject to the passing of legislative changes, individual taxpayers will get a one-off reduction of 100% of their final tax for the 2019/20 year of assessment in respect of profits tax, salaries tax and tax under personal assessments, subject to a $20,000 ceiling per case. 
Tapestry Comment:
This deduction is a very helpful benefit to individuals who are due to pay their taxes whilst trying to reserve cash. Of course, this legislation is still subject to change or cancellation, so individuals should still be making sure they can meet any tax liabilities or be contacting the relevant authorities if they cannot. 

Latvia: Insolvency
Until 1 September 2020, it is prohibited for creditors to file an application regarding the insolvency of a legal entity in cases where specific indications set out in the Insolvency Act appear. 
Tapestry Comment:
This break from creditors filing applications will allow companies some time to recover and hopefully remove any signs of insolvency if they have suffered financially as a result of COVID-19. 

Luxembourg: Deferral of Social Security
From April 2020, the Social Security Centre (CCSS) has suspended: the calculation of default interest for late payments, the procedure for the forced recovery of contributions, the enforcement of constraints by bailiffs, and fines against employers who are late in filing their declarations.
Tapestry Comment:
These suspensions allow both individuals and companies breathing room in both paying, and reporting, social security contributions. It is not clear when this will extend to, so it is important that individuals and companies ensure the information for filings is readily available in the event these are requested from the CCSS in due course. 

Madagascar: Closure of Governments
The Malagasy government declared the closure of all government departments except certain critical departments. 
Tapestry Comment:
It is not clear which departments are remaining open, or what provisions are in place for those that are closed. We would advise all individuals and companies to make sure all filings and payments can be made, or, to ensure these are available should the government departments request documents or payments once they are reopened. 

Monaco: Social Security
Employers and self-employed workers experiencing a significant drop in activity and who are unable to pay their further social security instalments can request a deferral from the Monaco social security authority. 
Tapestry Comment:
Clear advice on what would be considered a 'significant' drop is not available. Any employer or self-employed worker who has suffered financially as a result of COVID-19 who feels this deferral would be helpful could request this from the authorities who will assess it on a case by case basis. 

The Tapestry Team are always available if you would like to speak to us about any of your countries and operating your share plan globally during this time, so please do get in touch.

Team Tapestry

12 May 2020

In March, the European Commission adopted a Temporary Framework allowing EU member states to use certain types of ‘state aid’ to support the economy during the COVID-19 crisis. The European Commission has now extended the framework to allow EU member states to provide recapitalisation measures to companies in need. Companies benefitting from recapitalisation will be subject to a range of restrictions, including restrictions on management remuneration.
 
Impact on remuneration 

• Companies benefitting from recapitalisation measures will be subject to restrictions on management remuneration.
• As long as at least 75% of the recapitalisation measures have not been redeemed, the remuneration of each member of an impacted company’s management must not go beyond the fixed remuneration as it was on 31 December 2019. For persons becoming members of the management on or after the recapitalisation, the applicable limit is the lowest fixed remuneration of any of the members of the management on 31 December 2019. Under no circumstances will bonuses or other variable or comparable remuneration elements be paid.
• Also, as long as the recapitalisation measures have not been fully redeemed, impacted companies cannot make dividend payments, nor non-mandatory coupon payments, nor buy back shares, other than in relation to the state.
• Although the original Temporary Framework measures were originally stated to be in place until the end of December 2020, the European Commission has extended the period until the end of June 2021 for recapitalisation measures only.

Tapestry comment 
The threat of widespread economic downturn and a liquidity crisis is a cause for concern across the EU and so well targeted state intervention providing recapitalisation could contribute to preserving the economy and supporting its recovery. The amendment to the Temporary Framework will help to facilitate this and ensure that EU member states are able to help businesses that urgently need liquidity to access it.
 
The European Commission has, however, made it clear that the recapitalisation measures come with ‘strings attached’, including in relation to remuneration, to ensure that only those companies that absolutely need this support will rely on it. There are a few points of uncertainty in how the remuneration restrictions are drafted. For example, the scope of 'management' impacted is not defined. We anticipate that EU member states will refine and add further detail to these measures when they are applied in practice.
 
If we can support you with your remuneration arrangements, please do contact us.

Matthew Hunter

7 May 2020

We hope you and your families are staying well. 

As promised in our previous newsletter, each week we will be sending a COVID-19 Catch-up of key global developments on incentives to help keep you as up-to-date as possible, and it's that time again... 

COVID-19 Catch Up: 

Bulgaria - Tax Reduction
The deadline for filing the annual individual income tax return (and payment of income taxes) has been deferred to 30 June 2020. There is a 5% deduction available if tax is reported and paid by 31 May 2020.
Tapestry Comment:
This deduction is a helpful incentive to those who can still make their filing by 31 May 2020, but may have taken advantage of the deadline postponement. 

Egypt - Stamp Duty
Stamp duty has been reduced to 0.125% for non-residents and 0.05% for residents.
Tapestry Comment:
A reduction in stamp duty will be welcomed by those looking to sell or buy listed securities on the EGX. This is likely to be a temporary reduction. 

Guatemala - Securities regulator
The securities regulator in Guatemala has been closed due to COVID-19. The regulator's closure is causing delays for incentive plan filings (which are due quarterly). 
Tapestry Comment:
It is unclear whether these filings will then be requested once the regulator is fully operational again, so companies should ensure they can easily access the required information in the event that a backlog of filings will be required. 

Hungary - Furlough support
Certain employees who agree to reduce their contracted working hours by 50-70% are eligible for a monthly allowance. This monthly allowance can be paid for a maximum of 3 months and is calculated on a proportion of the salary lost due to the reduced hours (though it cannot exceed double the mandatory minimum wage). 
Tapestry Comment:
This is a helpful government scheme, allowing employees to reduce their working hours, without having a larger financial impact on the employee. Companies must agree these reduced working hours with the employees, so, if companies are considering this support these discussions should take place as soon as possible. 

Philippines - Securities regulator
The securities regulator in the Philippines (SEC) is closed until further notice. This is causing delays for incentive plan filings. Officers are working remotely and contact details, and other information, can be found on the dedicated COVID-19 page. 
Tapestry Comment:
Whilst the SEC office remains closed, it is helpful that alternative contact details have been provided. We hope this will help reduce the impact of delays on securities filings. 

The Tapestry Team are always available if you would like to speak to us about any of your countries and operating your share plan globally during this time so please do get in touch.

We are also running a series of 'Spring into Spring' webinars to do a deep dive into some of the topics which we think may be helpful to you at this time. 

Team Tapestry