Share incentives - what if the employee leaves?

Article Abstract:

Following passage of the 1984 Finance Act, many companies rushed to begin employee-share-schemes, which were considered a good means of employee motivation. However, problems may arise if the employee leaves the company. When the employee has an unexercised option and leaves the company before he would be entitled to exercise that option, the company will be in a good position. Some schemes allow the employee to exercise his option before leaving. Another case is of the employee who has exercised his option and is a shareholder. There is no problem if there is a market for his shares, but if there is not, there are potential difficulties. To prevent this, the company could make a rule that if the employee terminates his employment, he would have to sell his shares. Some companies have put a provision in their articles of association requiring the shares to be sold at fair market value. Inland Revenue has attempted to put restrictions on this kind of requirement, but has made modifications due to corporate complaints. A company cannot compel an ex-employee to sell shares, but it can prevent him from selling them to someone of whom the directors do not approve.

Profit sharing

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Can anything be wrong with a bonus with tax benefits?

Article Abstract:

Great Britain's Finance Act of 1987 introduced tax benefits for qualified profit-related pay (PRP) plans. PRP has not been enthusiastically received by the professional press and pay administrators. The criticisms of PRP have focused on the inflexibility of the plan's requirements, and on its incompatibility with other profit sharing arrangements. There are a number of practical and useful ways in which PRP can be used, however. One-half of a PRP bonus is free of income tax, up to 20% the amount of annual pay or 3,000 pounds sterling. The tax relief is on part of cash. Administrators can introduce a PRP plan by either converting an existing bonus plan or creating a new plan which qualifies for the PRP tax benefits. PRP plans can be applied to individual profit centers within a firm, so PRP plans can help to improve team performance and employee motivation.

Finance, Accounting and auditing, Human resource management, Bonuses, Great Britain

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Tax law meets accounting practice (again)

Article Abstract:

Brittania Airways Ltd. has won a favorable ruling from the High Court in its dispute with the Inland Revenue over the use of provisioning in the accounting of costs incurred in conducting engine overhauls. Its legal victory, however, has been questioned by many accounting experts. According to those who monitored the tax dispute, Brittania erred when it asserted that its use of provisioning could be justified by the fact that it was consistent with established commercial practice. Observers note that this argument is totally spurious since what is done in practice is not necessarily what is correct as defined by established accounting principles. Another point made by those who disagree with the High Court's ruling is that the type of provisioning employed by Brittania certainly did not conform with modern conceptual frameworks of liability accounting.

Tax Law, Public Finance Activities, Column, Tax accounting, United Kingdom. High Court of Justice

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