What are the key dates?

Running a share plan has to take account of all sorts of things- the company’s own timetable, tax rules, different tax years, payroll dates, the requirements of important shareholders, joiners and leavers, corporate events that affect the company or your employing company. Therefore there will be some important dates and if you miss them, you may lose out. Deadlines and key dates will be different for different kinds of awards and may change from one year to another or because of something that happens during the lifetime of the awards.

Most important will be the deadline for joining the plan – and the timescales that apply at the end. The time when the plan conditions have been satisfied and you can get your shares is often called the ‘maturity’ of your awards. The company should tell you very clearly what these dates are. Put them in your diary. If you are going to be away at a key time, tell the company, they may be able to help make sure you don’t miss the deadline. If you miss the deadline, your award may expire without you getting anything- this is often called ‘lapsing’. If you forget about a valuable award, miss the deadline and allow the award to lapse, you will lose out and there is probably nothing that can be done about it.

Here is some more information about some of the key dates that may be relevant.

Application date

Your company may ask in advance whether you want to apply to join the share plan. If the plan is one where your contributions are taken out of your pay, they have to ask you first. They have lots of things to sort out, so they will need to tell you what you have to do if you want to apply and they will need to set a deadline for receiving your application. The application may be on paper or it may be online or even through your phone. If you miss the deadline and then ask them, there’s probably nothing they can do to help. If you know you will be away, for instance, and you tell them in advance, they are more likely to be able to help you.

Grant date or award date

This is the date on which you first get rights under the plan. There will be a legal process to grant your award to you. Often this involves paperwork that you don’t see- but after it has happened you should get an award letter or certificate or some kind of electronic confirmation of your award. Keep a copy somewhere safe.

Often the benefits under the plan click in a certain time after the award date. This may be referred to as ‘vesting’. If your award is under a tax advantaged plan, the full tax benefits may depend on your holding your award for a certain time after the award date.

Dates of payroll deductions

If the plan is one where contributions are taken out of your pay, you’ll need to agree how much is to be deducted. Examples are savings under an SAYE plan or payments for partnership shares under a SIP. The information from your employer should explain when the first deduction will be and whether deductions will stop after a certain time- or whether they continue until you ask to stop them or change them, or until you leave the plan.

Performance period

Sometimes plans are designed so that the number of shares you get or the amount of the payout depends on how well the company has performed. The terms of the award will specify the performance conditions that apply to that award. This is very often the case for executive plans or discretionary plans, which are only offered to some employees, usually senior ones. The idea is that some pay is at risk if performance levels are low. The performance is measured over a performance period. Usually the performance period will be tied to the company’s accounting period. Performance is often measured over three or more financial years.

The information from your employer should explain whether the award is performance-related and should tell you what performance conditions will be measured and over what period.

Maturity date or vesting date

This is the point at which you can first get value from your share award. It means you have satisfied any employment conditions and, where relevant, the performance levels have been determined. In the jargon, your award has ‘vested’.

With some kinds of plan, your shares are delivered to you on or soon after the vesting date. Examples are RSUs or conditional share awards.

It’s different with option plans– once the maturity date has passed or the option has vested, you can choose to exercise your option until the end of the exercise period. If you leave, the plan rules may say you lose the right to exercise your option, even though it had vested, or may say the exercise period is cut short.

Exercise period(s)

This is relevant if your award is an option award. The period during which the plan allows you to exercise your option is called the exercise period. For instance, with SAYE options, the exercise period is usually 6 months. If you try to exercise after the end of the exercise period, you won’t be able to because your option will have lapsed and be worth nothing.

Date you acquire your shares

Once your share award has vested or once you have exercised your option, the company will then make arrangements to deliver your shares to you. This may take a little while, so it may not happen exactly on the vesting date or the exercise date. It is the date on which you actually get your shares that counts if you need to sort out your tax position.

If the value you get is going to be taxed as employment income, usually the plan says that the company has the right to sell enough of your shares so that the tax amounts can be paid- or else the company will probably ask you if you want it to arrange that for you. In either case, you then end up with a smaller number of shares because some of your shares will have been sold straight away.

Sometimes you may be give a choice of whether you want the company to arrange to sell all the shares for you (‘Sell All’) so you just end up with cash and you are never even aware of being a shareholder for a short amount of time. This is the kind of investment decision you need to think about carefully.

With a tax advantaged plan in particular, this decision can make a difference to the amount you finish up with, especially if capital gains tax treatment applies and the amounts involved are bigger than your capital gains tax annual exemption.

Payment date for cash proceeds

If the company arranges to sell some of your shares for you, it will deduct any tax amounts that need to be deducted and pay the rest to you in cash. It can take a little while for the cash to come through. Sometimes it won’t be until the next normal pay day. The company should tell you when you can expect to receive your money. You might then want to check it has come through. You will want to decide how to use the money- maybe you will invest some of it, maybe you need it to repay amounts you have borrowed, maybe you will decide you want some of it to go to charity. You might want to discuss the choices with a personal financial adviser if you are not sure.

Tax year end

In the UK the tax year does not end in December, which may seem strange. It runs from 6 April in one year until 5 April in the next.

Your tax is worked out for each tax year. You get a new capital gains tax annual exemption when the new tax year starts. And the Pay as You Earn system through which your employer calculates and accounts on your behalf for tax on your earnings resets itself when the new tax year starts. If there is a change in the rate of tax, the new rate normally begins at the start of a new tax year.

Sometimes you have a choice whether a taxable event in relation to your share plans will take place in the old tax year or the new one and in some situations that decision can make a big difference to the amount you finish up with after tax.

Financial year end

This is the date when the company’s accounting year ends. Often that means there will be some pressure to get things finished off, debts chased up and so forth. Depending what job you do, you may be very aware of the pressures of year end.

After the year end, the company has to prepare accounts and these have to be reviewed by the auditors and published.

Publicly traded companies have to publish their results for each financial year. They also release results after the first 6 months of the financial year, and sometimes even quarterly. You will be able to find the financial accounts on the company’s website.

Close period

If the shares you have are in a company that is publicly traded, there are certain times when employees who are in a position that means they could have access to information that investors generally don’t have, are not allowed to trade in the company’s shares. This is to prevent ‘insiders’ having an unfair advantage.

For instance certain employees will be unable to trade in the period running up to the public announcement of the company’s results- this is called a close period. There will also be times when you are not allowed to trade, if you have unpublished price sensitive information. Most publicly traded companies have a dealing code that helps to make sure employees stay within the rules. Breaking the rules is very serious, can even result in criminal liability.

Although there are a few exceptions, that can, for instance, mean that all-employee share plans can continue as normal through a close period, you need to understand the rules as they apply to your company and don’t assume you will always be free to deal in shares whenever you wish.

Results announcement

If your company’s shares are publicly traded, the investors section of the company’s website will show when the company is due to announce its financial results to the market. Usually, once the results have been announced, employees are free to exercise awards and/or sell shares because (unless there is some other corporate activity in discussion) all the information ought then to be in the public domain.

Awards subject to performance conditions often vest on or shortly after a results announcement and this is often the case for other awards too.

The period for granting new awards is also often shortly after the results announcement.

Prohibited period or blackout period (for instance where someone has unpublished price sensitive information)

There are rules to prohibit employees and others taking advantage of a situation where they know something about the company that is not yet generally known, and which could have an impact on the company’s share price. This includes the normal close periods in the run up to the company’s results announcement. However, there can be other times when these rules kick in – for instance if the company is considering buying another business, or selling one of the businesses it owns currently, or if someone is considering making an offer to take the company over.

Individuals who have access to this kind of ‘inside information’ will be prohibited from dealing in the company’s shares during any such prohibited periods. This means not exercising options and not selling shares. Where share awards would otherwise vest in a prohibited period, the plan rules may provide that the vesting is delayed, to avoid a situation when people may get shares but be unable to sell any in order to cover their tax bills.

Dividend record date

Not all companies pay dividends. Private companies don’t have to pay dividends at any particular time. Publicly traded companies will normally make clear in advance when a dividend is to be paid. For instance the company may announce that a dividend of so many pence per share will be paid to those who were registered as shareholders on such and such a date. Often there will be two dividends per year. This information will usually be in the investors section on the company’s website.

If you have a choice about when to take share plan actions, you might choose a time that ensures you will have your shares in time to receive the next dividend on them.

If you sell your shares around the dividend record date, the broker that sells them for you will have to make sure the dividend goes to the right person.

Once the dividend record date has gone past, shares get bought and sold without the right to the dividend, even though the dividend might not have been paid yet. People talk about shares being traded ‘ex-div’- which means without the dividend. The ex-div price will normally be a bit lower, because it doesn’t include the dividend.

Date of takeover, company sale or other corporate event

If there is a corporate event affecting the company, it will need to think about how that affects the people who participate in its share plans. There are rules that require companies to give information to shareholders and share plan participants in these situations. There will be a special timetable for the corporate action and the company should give you clear information about the choices you have and the time within which you must tell them the choice you have decided upon. It’s worth diarising these and making sure you won’t be away. If you know you are going to be away, tell someone, they may be able to help you sort things out in advance. If you miss the deadline, you could miss out.

The plan rules will normally say what happens depending on the type of corporate event and will set out some timescales that have to be respected.

Date of giving or receiving notice to leave employment

If you are planning to leave, or if you think the company may fire you or offer you redundancy, or if one of these things happens unexpectedly, it’s worth being aware that the share plan rules will normally say what happens and when. Make sure you understand the timescales. Sometimes you lose your award, sometimes it vests early but you only get a proportion of your shares, sometimes you get a period in which to exercise an option award and it becomes worthless and lapses at the end of that time.

Sometimes the position is different, depending on why you leave- rules are often more generous for ‘involuntary ‘ leavers- e.g. ill health or redundancy, than for ‘voluntary’ leavers-e.g choosing to go and work for a competitor. In real life, situations aren’t always clear cut. Some plan rules recognise this by allowing the company’s directors to allow an award to pay out where otherwise it would lapse.

Some plan rules have leaver provisions that kick in on your leaving date. In other cases, the leaver rules kick in when you give notice that you are going to leave- or sometimes even if the company gives you notice. If you are planning to leave, you may want to factor the likely share plans outcome into your thinking.

If you have to leave employment when you didn’t want to, you may well decide to take legal advice. If you do, then get together all the information you have about your share plan awards so your adviser can consider this as part of the picture, especially if your awards were valuable and you have been told that you will lose them. But be aware that the plan rules may well say very clearly that if you leave, you lose your award and are not entitled to any compensation for that. When you joined the plan, it is likely that you would have been asked to accept and agree to be bound by the rules of the plan. This can be a very complex area.

Leaving date

Some plan rules have leaver provisions that kick in on your leaving date. In other cases, the leaver rules kick in when you give notice that you are going to leave- or sometimes even if the company gives you notice.

For tax-advantaged plans, the reason for leaving can affect the tax position- if you are leaving due to one of the ‘good leaver’ reasons set out in the statute, you may still get capital gains tax treatment, for instance, even though normally a person who left at that time would have any benefit taxed as earnings. With tax advantaged plans, the statute sets out some of the timescales and the plan rules will have to incorporate those.

If your award pays out or you exercise your option after you have left, in circumstances where the value is taxed as employment income, the old employer still has to operate Pay As You Earn even though it may not have full information on your earnings any longer. Sometimes this can mean you get taxed more highly in that month and you end up suffering more tax than you should have. Normally, whilst you remain employed, this just gets corrected by taking less tax out of your pay in the next months. However, if you’ve left, there may be no time for this. If that happens, you can reclaim the overpayment when you complete your Self Assessment Tax Return or it may be possible for your tax code to be adjusted so that less tax is taken off your earnings from a future employer.

There are some tax rules that work differently once you stop being employed by the share plan company or within its group. For instance, if you were hoping to benefit from Entrepreneur’s Relief, one of the conditions is a 12 month employment condition. This is measured immediately before the sale of the shares and if you leave before you can sell them, you won’t qualify any more.