Restricted Stock Units in Europe - Would you give non-binding advice?
I posted this situation on the WorldatWork bulletin board -- two individuals suggested I check in with this group to gain better information...so here goes!
I need advice...to ensure we are appropriately administering the plan and are in compliance with all legal and tax requirements (US and local). I became aware of this plan only a few weeks ago.
My company issued RSU Awards last year...the first traunch (12%) vest in April, 2009. Two award recipients are located in Belgium....and from what I understand, the company should have reported the grants at that time (the awards are minimal -- 5,000 units for each employee), the fmv was $3/share at grant.
The award documents state that the units are to be settled in shares at each vesting date. However, our legal counsel states that the intent is to issue "Unit Certificates" (not referenced in original agreement) that read as follows:
"This Unit Certificate represents XXX shares of Common Stock (the "Shares") of COMPANY NAME (the "Company") issued to _____ (the "Employee"), effective ______. This Unit Certificate shall entitle the Empoyee the right to receive a cash payment based upon the fair market value of the Shares upon the sale of the Company or upon redemption of this Unit Certificate by the Company upon a termination of employment. This Unit Certificate is issued pursuant to the Company's Restricted Stock unit Agreement dated as of ____."
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My take is that the Unit Certificate actually defers compensation for the employee -- almost indefinitely; however, we would have to amend the original agreement to allow for deferral?
Then we would need to explain this to Belgian authorities when we finally report the grants.
My Finance group says, "issue in shares," but is also cognizant that the value is minimal.
Any other considerations (pitfalls) I should be aware of? I need to plead my case with Legal.
Thank you, very much!
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Sorry if I'm not clear here, but I've never encountered quite this situation before. Legal counsel is modifying an existing grant that settles in shares into a grant that settles in cash only at the time of termination or acquisition?
Is legal making this modification only for the Belgium grants?
In any case, because you are "taking value away" from the participant, you will probably have to get the consent of the participant to modify the awards. Changes like this can generally not be unilateral.
In addition, since the modified awards are cash-settled, they are generally subject to liability accounting, and must be re-measured each quarter until settlement. Most softwares/systems don't support this, so the calculations must be one offline.
I'm sure there are other issues as well, but these are the ones that spring to mind most quickly.