BREXIT – FROM AN EMPLOYEE SHARE PLANS PERSPECTIVE 21 June 2016 Marcus McEvoy > Computershare Stephen Diosi > Mishcon de Reya
BREXIT – FROM AN EMPLOYEE SHARE PLANS PERSPECTIVE
21 June 2016 Marcus McEvoy > Computershare Stephen Diosi > Mishcon de Reya
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
INTRODUCTIONS
Stephen Diosi
Partner, Head of Employee Incentives and Executive Remuneration
+44 20 3321 7534
Our mantra: it’s business but it’s personal
• Over 400 lawyers; 700 people in total
• Dedicated Employee Incentives practice
• Core practice teams: Corporate, Dispute Resolution, Employment, Real Estate, Private
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
WHAT WE ARE GOING TO COVER
• The European legal landscape – how do you withdraw?
• Why are share plans relevant?
Share Plans
Securities laws
Remuneration in financial services
Malus and clawback
Market abuse
regulations
Data protection
Disclosure of directors’
remuneration
State aid
Age discrimination
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
THE NATURE OF EU LAW
• Treaties
> The founding principles of all EU law
> No new law can be proposed without the policy being covered in a treaty
Examples: Maastricht, Lisbon, Nice
• Secondary legislation
Regulations • Directly applicable
Directives • Need to be implemented into
national law
Decisions • Binding on those they are
addressed to
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
HOW TO WITHDRAW FROM THE EU
Result of the referendum - 23 June 2016
UK serves notice on the EU (likely to be given very soon after)
Two years in which to negotiate the terms of an exit
At the end of the notice period, UK withdraws from the EU. All Regulations fall away. EU laws integrated within UK legislation remain, unless specifically amended/repealed.
All current EU laws remain in place during this time
Extension can be agreed (but would need agreement from all remaining 27 EU Member States)
Likely to be around 10 year process
NB – Article 50 of the Treaty on
European Union
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
EMPLOYEE SHARE PLANS
SECURITIES LAW
• EU Prospectus Directive – incorporated within UK law
• Applies a single regime throughout the EEA for when a prospectus needs
to be published on the offer of securities to the public
• Range of exclusions and exemptions available:
> Free shares/financial de minimis limits
> Non-transferrable
> Less than 150 employees
> Employee share schemes
• However, different interpretations across member states
• Employee share schemes exemption only applies to EEA countries
• Could be more onerous requirements when exporting and/or importing
share plans. UK companies might have to select a “home member” state
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
EMPLOYEE SHARE PLANS
FINANCIAL SERVICES
• Capital Requirements Directive – incorporated within UK law
• Regulates (amongst other things) remuneration in financial services sector
• 6 different Remuneration Codes. General principle is to promote sound and
effective risk management. Key elements of variable remuneration include:
> deferral
> minimum percentage paid in shares
> bonus cap (unsuccessfully challenged by the UK courts)
• Global application:
> Global subs of UK firms – yes
> UK subs/branches of non-EEA firms – yes
> UK branches of EEA firms – must apply their home state’s equivalent
rules
• Brexit could allow the UK to amend the rules to ensure laws are relevant to
UK financial services market e.g. removal of the bonus cap?
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
EMPLOYEE SHARE PLANS
MALUS AND CLAWBACK
Financial services
EU Capital Requirements
Directives (III and IV)
PRA/FCA Senior Management
Arrangements, Systems and
Controls
Performance adjustment – 7 years (10 years in some cases)
All UK listed companies
UK Corporate
Governance Code (FRC)
Clawback and malus
• Comply or explain
• No specified length, although “at risk” for 5 years generally expected
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
EMPLOYEE SHARE PLANS
MARKET ABUSE REGULATIONS
• UK listed companies are subject to strict rules and standards to ensure
PDMRs do not abuse/do not place themselves under suspicion of abusing
inside information
• Currently rules set out in FCA’s Model Code and Disclosure and
Transparency Rules
• From 3 July 2016 EU Market Abuse Regulations come into force
• MAR will have direct application, and takes priority over national law -
Model Code will fall away; other amendments being made; EU
interpretation takes priority
• In the event of a Brexit vote, companies will still need to comply with MAR
until exit/exit terms are agreed
• A return to the current system?
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
EMPLOYEE SHARE PLANS
DISCLOSURE OF DIRECTORS’ REMUNERATION
• UK legislation: Enterprise and Regulatory Reform Act 2013 and Large and
Medium-Sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013
• UK listed companies:
> remuneration policy: subject to shareholder approval
> implementation report: subject to advisory vote
• What about Europe?
> European Shareholder Rights Directive
> “Say on Pay” rules
> Additional disclosures
> Share based compensation should represent less than 50% of total pay
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
EMPLOYEE SHARE PLANS
DATA PROTECTION
• Data Protection Act 1998 – implementation of an EU Directive
• 8 data protection principles
• Share plans involve a natural flow of data
• Data can be freely exchanged throughout the EEA, but the flow outside
must provide an adequate level of protection
• If not at an adequate level, express consent would be needed or individual
EU model contract clauses agreed
• New EU General Data Protection Regulations comes into force mid-
2018 – a comprehensive and significant reform with a higher standard
• Impact on UK as the location for European headquarters of foreign
companies?
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
EMPLOYEE SHARE PLANS
STATE AID
• UK is subject to the state aid regime (Treaty on the Functioning of the
European Union)
• Regulates “aid” granted by an EU member state that favours certain
undertakings by others
• Enterprise Management Incentive plans – selective by their nature
(have to have gross assets of less than £30m)
• Any change requires approval from European Commission
• General approval expires in April 2018 – would need to apply for
renewal
• Could Brexit see a new wave of tax-advantaged share plans providing
more “relevant” benefits?
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
EMPLOYEE SHARE PLANS
AGE DISCRIMINATION
• The Equality Act 2010 – implemented the EU Equal Treatment
Framework Directive
• Life cycle of a share plan requires certain considerations to ensure
there is no discrimination – especially relevant to age e.g. qualifying
period of employment and “retirement” as a good leaver reason
• Tax-advantaged schemes were amended in 2013 to remove the
concept of “specified age”
• Many companies have introduced a retirement policy
• UK employment tribunals must interpret EqA in light of the Directive’s
wording and purpose. ECJ currently determines points of interpretation
• Following Brexit, more flexibility for UK courts?
• Impact on other employment related laws (much of which is derived
from EU directives)?
ab
WWW.MISHCON.COM © MISHCON DE REYA LLP 2016
BREXIT - TO SUM UP
• Unlikely to have a material impact on the design of share plans
• Certain regulatory and compliance issues will need to be carefully
watched e.g. data protection, market abuse regulations and security
laws
• More flexibility for the UK to offer tax benefits to businesses in certain
sectors?
• Could the bonus cap go?
…will all form part of Brexit negotiations - which will take time.
BREXIT – FROM AN EMPLOYEE SHARE PLANS PERSPECTIVE
Thank you
Any questions?