ETASSUM21120 | Schedule 2 share incentive plan (SIP): General requirements: No preferential treatment for directors and senior employees

A SIP will not meet the requirements of Schedule 2 if it contains features which benefit mainly directors or higher paid employees (paragraph 10(1)). This would include for example a plan that was designed to channel a disproportionate number of shares towards groups of directors or higher paid staff.

However, this requirement does not prevent a company from being able to vary awards of free shares according to employees’ levels of remuneration (paragraph 10(4)) – see ETASSUM21080.

Groups of companies

Paragraph 10(3) contains a further requirement which applies only if the company which established the plan is a member of a group, (A “group of companies” is defined at paragraph 99(1) as “a company and any other companies of which it has control and “group company” has a corresponding meaning”). The requirement is that the identity of the company (or, if it is a group plan, the constituent companies – see ETASSUM20120) must not cause the plan to confer benefits wholly or mainly on:

• Employees who receive the higher or highest levels of remuneration in the group, or

• Directors of group companies.

The establishing company, when establishing a Schedule 2 SIP in respect of a group company, should ensure that either:

• all companies in the group are to be constituent companies in the plan (paragraph 4(1)),

• the establishing company is not a member of a group of companies (paragraph 91), or

• make certain that the scheme would still meet the requirements of paragraph 10(3) despite the exclusion from participation of one or more group companies.

Schedule 2 does not allow a company to exclude its eligible employees from participating in its own Schedule 2 SIP (paragraph 15(2)(a)). In other words, the establishing company is always a “constituent company” in its own plan.