Brexit – What could this mean for Employee Share Plans?

Posted on 18 March 2016

Brexit – What could this mean for Employee Share Plans?


We now know that on 23 June 2016 UK voters will have their say on whether Britain remains a member of the EU or not. This will be one of the most significant political questions to be addressed in at least two generations and will have an impact across all aspects of how, as the UK, we interact and engage with our European neighbours.

Clearly, given the number of UK laws that emanate from Europe, an exit would potentially cause much of the legislation that regulates business, employment relationships and social co-operation to fall away, bringing with it a necessity to ensure transitional legislation is in place to maintain the status quo, whilst new UK specific laws are introduced to replace thousands of EU-derived rules - a process that many commentators consider will take at least a decade.

Why Share Plans are relevant

The design and operation of employee share plans and other remuneration arrangements are subject to a multitude of laws. Of particular focus since the financial crash of 2008, EU regulators have gone to great lengths to address the perceived unfairness and inequity of executive pay in the financial services arena ensuring that there should be no reward for failure.

This has led to malus and clawback provisions being introduced, capping bonuses and deferring compensation to link pay to longer-term performance. With a significant proportion of global finance being transacted through London, it can be argued that the UK has felt the force of these laws disproportionately compared to its European counterparts. Indeed the FCA (unsuccessfully) challenged the bonus cap through the European Court of Justice and it would not be unreasonable to suggest that were the UK to leave the EU, the cap would be scrapped.

But there are also other areas that need to be considered. For example:

Securities laws: The most basic of share plan concepts, the grant of options and awards is subject to EU prospectus rules. This applies a single regime throughout the EU and provides a set of exclusions and exemptions to enable plans to be operated across the EU without the tortuous and expensive requirement to produce a prospectus.

However, companies based outside the EU cannot necessarily take advantage of these exemptions. As such, following a Brexit, UK companies with employees across the EU may find themselves subject to more onerous requirements than their EU competitors.  This could  make it far more difficult for them to extend their share plan arrangements more widely.

Age discrimination: There are certain touch points during the life of a share plan that require careful consideration to ensure a company is not discriminating by reference to age. In particular, in considering any qualifying period of employment, it is important to ensure the requirement does not unduly restrict the ability of certain age groups from being able to participate, unless objectively justified. Similarly in determining whether an employee leaves by reason of “retirement” - and therefore is a good leaver - the interpretation of that rule should be assessed in a consistent manner, without reference to age.

These principles have largely come about since 2006 through the implementation of age discrimination rules introduced through EU regulations. How likely is it that such principles will change following a Brexit? Given that age discrimination legislation has become part of the fabric of UK employment law, it is unlikely that the UK will move significantly away, if at all, from the current position. Nevertheless, there will obviously be an opportunity to review the legislation as it stands today, with the possibility that some changes will follow.

Share dealing rules: Companies listed on the London Stock Exchange are subject to strict rules and standards - principally through the Model Code - that regulate when their directors and other senior managers are permitted to deal in shares and the clearance process that must be followed. In respect of share plans, this includes the grant and exercise of options and any subsequent sale of shares.

These rules will be subject to change with effect from 3 July 2016 as a result of the UK’s implementation of the Market Abuse Regulation. Under current proposals, the EU driven changes potentially bring more uncertainty into how the requirements can be satisfied, doing away with the Model Code and introducing a more general systems and controls test in its place.  Whilst there is every likelihood that UK companies will continue to adopt their current practices in many respects, there will be areas of change that companies will need to adopt now. However, in the event of a Brexit, it would be no surprise if those changes are short-lived with the UK reverting back to current rules and practice.  

Data protection: The operation of share plans naturally involves a flow of employee data between employing entities and any third party plan administrator. Currently, such data can be freely exchanged within the EU. However, were the UK to withdraw completely from the EU, the European Commission would have to rule that a post-Brexit UK provides an adequate level of protection for the rights and freedoms of data subjects. Without this ruling, employee data could not be exported from the EU to the UK without finding another lawful way of doing so, such as obtaining express consent or through model clauses, which would involve additional administrative burden.

So where does this leave us?

Life after Brexit is unlikely to require a material change in how companies approach the design of their share plans and remuneration arrangements. Whilst there may be some operational and regulatory considerations to take into account, it would be expected that as part of the process of and discussions around withdrawing from the EU, the UK Government will strive hard to ensure that the UK remains open for business and does not jeopardise the competitiveness of UK companies.

Of course, in the event of a Brexit, there would also be opportunities for Government to take a more protectionist approach to UK businesses, with remuneration arrangements playing a key part in ensuring they are able to compete to attract and retain the best talent. Whether this would lead to changes such as the removal of the bonus cap for financial services companies remains to be seen, but there is no doubt that matters such as these would be influenced by the precise form of a post-Brexit relationship with the EU .

If you would like to discuss any aspect of your incentive arrangements, please contact Stephen Diosi: or 020 73321 7534.

How can we help you?

How can we help you?

Subscribe: I'd like to keep in touch

If your enquiry is urgent please call +44 20 3321 7000

Crisis Hotline

COVID-19 Enquiry

I'm a client

I'm looking for advice

Something else