N2 - The Five W’s of Plan Design Flashcards
What are the five W’s of plan design ?
Why? Who? What? When? Where?
Why ?
Inportant that companies understand the key drivers for implementing an employee share plan and set clear objectives to reflect these drivers.
What the common reasons companies introduce share plans
• incentivise employees;
• reward employees;
• attract and retain talent;
• shareholder alignment;
• employee engagement;
• good governance;
• risk management; and
• regulatory compliance.
Why do share plans incentivise employees?
An employee may be motivated and incentivised by the promise of receiving shares for either staying
with the company or meeting certain performance criteria. Employees can choose to receive updates on their employer’s financial results and future strategy, increasing engagement.
Additionally,employees’ wealth becomes increasingly aligned with the results of the company which can increase
incentivisation and motivation. Employees who are shareholders can also feel an increasing level of
empowerment.
Why is it important to understand the company’s key objectives?
will be critical in looking at what type of plan to put into place to ensure it meets these objectives and is successful.
A company will also need to consider how the intended share plan will fit within the organisation’s vision and business objectives as well as its wider remuneration strategy to ensure consistent messaging and objectives.
Why do they need to establish who the plan is for?
need to determine the employee population that will participate in the plan, as this will also inform the plan design.
For example, if it is only the executive population, there may be shareholder expectations around performance, vesting
and/or holding periods, and the company will need to ensure they design a plan which provides scope
for these provisions.
Examples of employee populations that might be relevant for a new plan
• executives;
• global management team;
• specialist groups of employees;
• high potentials/talent; and
• all employees.
Why is what important?
will the awards under the plan be offered for nil-consideration (i.e., free for the
employee), or will employees be required to purchase shares? Will shares be delivered, or will the
company need to deliver cash payments?
By determining what will be offered (i.e., what awards), the company can look more closely at the type of plan to implement (e.g., a long term incentive plan, deferred bonus plan or all-employee purchase
plan) to house these award types.
Why is when important?
The frequency of the award offerings under the plan can impact the design of the plan, and so it is important to determine when the plan will operate, for example, will the plan be annual, bi-annual,
monthly, or even a one-off (for example, a celebration award)? If it is an ongoing plan, how frequently will it be offered? For example, if the plan is to be ongoing, you might design a plan which is more future
proof than a plan which is one-off.
Why is where important?
Home country or globally or in selected key markets?
The five W’s will affect this
What plan would you use for a sense of ‘one organisation’
Who ? - broad participation
What ? Award of share for no payment
Where ? All countries
When? - one off
Strong global message, employee participate on same terms so all on equal footing
Plan for increased engagement?
Broad based participation, purchases shares with a match which is aligned to company performance, globally consider key markets first and ongoing
Promotes engagement and raised financial awareness . The co- investment adds a level of active buy in
Plan for attractiveness of the organisation as an employer
Broad bases participation, meaningful value purchase plan with generous matching award or free award with generous leaver provisions, global and ongoing
Increases attractiveness of the organisation to current and new hires
Plan to align e,players and shareholder interests to increase business performance
Key individual and decision makers, award id shares die nonpayment subject to performance conditions, globally, ongoing or annual grant.
Tying award to performance e conditions aligns with shareholders and can promote innovation.
Plan for encouraging or improving retention of employees
Broad bases participation or focuses in senior population if appropriate, awards subject to longer holding period of matching state ration linked to length of service, globally, on going or one off award to address specific retention issues.
Employees incentives to stay with the organisation and retention and long term service is rewarded
