2014: Equity Compensation in France is Still Alive

Transcription

1 2014: Equity Compensation in France is Still Alive Laurent Drouin, Head of Sales, RM, Marketing and Product Development, CACEIS Corporate Trust Nathalie Hellio, EALEA Director, Accenture Didier Hoff, Head of Human Capital, EY Société d'avocats Christina Melady, Partner, Taj Société d'avocats, Member of Deloitte Touche Tohmatsu Ltd

2 Agenda Introduction Equity compensation in France: statistics and trends Equity compensation worldwide: statistics and trends Structuring for French operations of non French based global companies Case Study Takeaway Questions

3 Introduction As of September 28th, 2012

4 Introduction French qualified vs non-qualified awards: tax treatment from 2008 to 2014 TAX TREATMENT FOR THE BENEFICIARY taxation in 2008 Gain of Free shares granted under a French qualified plan taxation in 2011 taxation in 2012 new grant in 2014 Gain of Compensation income (non qualified plan) taxation in taxation in taxation in 2012 taxation in Income tax (marginal) 30% 30% 30% up to 45% up to 40% up to 41% up to 45% up to 45% Employee social security contributions 0% 0% 0% 0% 8,85 to 25% 8,85 to 25% 8,85 to 25% 9 to 25% Employee contribution * 0% 8% 10% 10% N/A N/A N/A N/A Social taxes 11% 13,5% 15,5% 8% N/A N/A N/A N/A Overall tax rate 41% 51,5% 55,5% up to 63% around 50% around 50% around 55% around 55% EMPLOYER COSTS Employer contribution due at grant Employer social security contributions due at the date of payment taxation in 2008 taxation in 2011 taxation in 2012 new grant in 2014 taxation in 2008 taxation in 2011 taxation in 2012 taxation in % 14% 30% 30% N/A N/A N/A N/A N/A N/A N/A N/A 25 to 45% 25 to 45% 25 to 45% 25 to 45% * for free shares granted as from October 16, 2007

5 Equity compensation in France CACEIS Statistics from January 2009 to August 2014 Qualified plans are still alive Source : Sep2014 Study on all Euronext Paris listed Clients of CACEIS

6 Equity compensation in France CACEIS Statistics from January 2009 to August 2014 Source : Sep2014 Study on all Euronext Paris listed Clients of CACEIS

7 Equity compensation in France CACEIS Statistics since January 1st 2014 Source : Sep2014 Study on all Euronext Paris listed Clients of CACEIS

8 Equity compensation in France Report AMF 2014 The report covers CEO equity awards in French companies * Source AMF Report 2014

9 Equity compensation in France Report AMF 2014: CEO grants * Source AMF Report 2014

10 Equity compensation in France Report AMF 2014: CEO grants * Source AMF Report 2014

11 Equity compensation in France Qualified plan vs Cash + Qualified Equity Awards + Cash Employee Tax deferral Future capital losses tax deductible Combination with PEE for certain plans Employer Cost savings case by case (IFRS2) Excluded from calculations for certain payments (i.e. severance) No cash True alignment with shareholders / incentive to invest in shares Employee Flexible (holding period constraints) Counterpart in social benefits Employer Flexible design Deferral of costs / payment if award actually delivered Simplicity

12 Equity compensation worldwide Deloitte 2014 Global Share Plan Survey Key points: Despite the very real challenges of operating global share plans, be they executive or broad-based, the vast majority of companies operating them concluded they are worthwhile. If they were given a clean slate, they would operate the same plans again Share plans are becoming increasingly global. The number of companies that have extended their share plans into every country in which they have a presence has increased from 20% in 2013 to 30% in 2014

13 Equity compensation worldwide Deloitte 2014 Global Share Plan Survey Comments: Share award plans more popular than stock option plans With the exception of the US, most executive plans are subject to performance conditions. However, our expectation is that in the US performance conditions will become more prevalent Where performance conditions are used for executive plans, share price related measures (predominantly TSR) and financial performance conditions (predominantly EPS) continue to be the most prevalent measures of performance

14 Equity compensation worldwide Deloitte 2014 Global Share Plan Survey Comments:

15 Equity compensation in France Non-qualified vs. Qualified plan in France + Non-Qualified + Qualified Employee Flexible holding periods / global plan Counterpart in employee social charges paid Employer Flexibility for plan design Social charges (at delivery) only applicable if a gain is realized Reporting requirements limited to payroll at vesting Regarded as simple by non French based companies Employee Tax deferral / Capital loss deduction Market expectation in France is still a qualified plan Employer Employer costs (social charges) generally lower Exempt from certain payments (severance payment etc.) No withholding regarded as simpler for French based company Incentive to have employees invest / keep shares

16 Case study Accenture equities plan - overview IPO in 2001 SIP implementation for 10 years, reviewed in 2010 ESPP for all employees below MD and VEIP for MD (democratic plans) Stock option plan stop granting in 2005 (10 years) RSU performance plan for SM and MD (3 years vesting) RSU celebratory plan for promotion to MD or experienced MD hired (cliff vest year 5) French subplan for qualified stock options French subplan for qualified RSU implemented in 2005 and stopped in 2012 (except for RSU dividend equivalent attached to previous qualified RSU) Value of ACN share: at IPO: $14.5 Current: $80 Listed on NYSE (granted by Ireland plc holding company)

17 Case study Living with qualified and not qualified equity plans in France The decision to stop granting RSU under the French subplan was mainly driven by cost/tax reasons both from an employee and employer standpoint: Beneficiaries are SM and MD at a level of income that was rendering the qualified taxation less favorable than taxation as salary Turnover is quite high in our consulting/technology services industry and the «30%» social tax is paid even if the beneficiary does not receive the shares It was decided to continue to grant RSU but under the global plan which: Avoids the requirement to customize the plans for French beneficiaries Engages the employee (3 or 5 years of vesting) and drives a shareholder mentality ACN distributes dividends twice a year with a constant increase ($1 in Nov) MD have an Equity Ownership Requirement (multiple of salary in equity) Accenture & employees in France have to deal with administrative complexities of qualified stock options, qualified RSU and non qualified RSU

18 Case study Living with qualified and not qualified equity plans in France Complexity for the employee that can benefit from the 3 different plans Accenture communicates on taxation (myholding tool, equity guides, link to a tax tool, annual guide for tax compliance prep) Complexity for the company: Differentiate with broker qualified vs non qualified to ensure holding periods are respected Reporting requirements are complex for qualified: Payroll to pay the «30% social taxes at grant» Annual report for exercised stock options and released RSU included in N4DS Annual report for RSU qualified grants (remains for the qualified RSU div equivalent) included in N4DS Individual statements for exercised options & delivered RSU Cross border employees generate complexity Annual reports require since 2012 the sourcing of income to France At sale, French NR are subject to WT (broker obligation) Difficulties to implement hypo tax French NR are also subject to equity trailing liability (even for non qualified) Dividends received from a non French broker are subject to spontaneous tax return & advance payment

19 Takeaway Debate is different depending on country of headquarters Variety of approaches and designs have increased: not one general tendency Equity plans still alive even if cash alternatives introduced: custom design / alignment with objectives

20 Questions

21 Thank you Laurent Drouin CACEIS Corporate Trust Nathalie Hellio Accenture Christina Melady Taj - Société d'avocats cmelady@taj.fr Didier Hoff EY - Société d'avocats didier.hoff@ey-avocats.com