Glossary of Terms
- Annual Bonus Plan
- Approved Share Plan
- Award
- Bonus
- Capital Gains Tax (CGT)
- Co-Investment Plan
- Company Share Option Plan (CSOP)
- Deferred Annual Bonus Plan
- Dividend
- Employee Benefit Trust
- Employee Share Ownership Plan
- Employee Stock Purchase Plan
- Enterprise Management Incentive Plan
- Exercise Price
- FTSE 100
- FTSE 250
- FTSE 350
- HMRC
- Incentive Stock Option Plan (ISO)
- Income Tax
- IPO (Initial Public Offering)
- Lapse
- London Stock Exchange
- Long Term Cash Plan
- Long Term Incentive Plan
- Market Value
- Non-qualified Stock Option Plan
- Participant
- Performance Share Plan
- Restricted Share Plan
- Share Appreciation Right (SAR)
- Share Option
- Short Term Incentive Plan
- Un-approved Share Plan
- Vesting (maturing)
Annual Bonus Plan
A variable annual incentive plan where the amount earned depends on performance measured over one year or less.
Approved Share Plan
This type of share plan has gained approval from HMRC. HMRC approval is valid for a period of ten years, or until the share plan rules change. Approved share plans often offer tax relief to either companies, employees or both.
Award
A general term for the grant of a share or cash based benefit to an employee under a plan.
Bonus
A variable incentive paid in cash, shares or a combination of both where the amount paid relates to performance over a defined period.
Capital Gains Tax (CGT)
This is a form of tax incurred upon the disposal of an asset where a capital gain has been realised (where the gain exceeds the annual CGT allowance - £9,600 in the UK for the 2008/2009 tax year).
Co-Investment Plan
An incentive plan where participants commit an amount of personal capital and are eligible to receive a “matching” award from the company linked to their original investment and performance requirements based on company performance. May be linked to the deferred annual bonus (see below).
Company Share Option Plan (CSOP)
The HMRC term for the approved share option plan.
Deferred Annual Bonus Plan
A variable incentive plan with performance measured over one year or less where part or all of the payment of the cash bonus earned is deferred for a further period of time (typically three years). The deferred element may be converted into shares and may be “matched” by the company with further shares.
Dividend
The share of a company's net profits distributed by the company to its shareholders. It is typically paid twice yearly in a fixed amount for each share held.
Employee Benefit Trust
A trust established by a company to hold shares and/or other assets including cash to be used to satisfy awards made to employees and former employees.
Employee Share Ownership Plan
Now a term used to describe a wide variety of share plans used by UK companies.
Employee Stock Purchase Plan
A US Plan under which employees can buy shares (stock) in the Company on favourable terms. Providing the Plan satisfies the US legislative requirements, the share can be bought at a discount with favourable tax treatment.
Enterprise Management Incentive Plan
An option plan available to smaller UK companies (that satisfy certain capital requirements) that provides for the grant of share options with favourable tax consequences.
Exercise Price
The price per share that the holder of an option must pay to exercise the option. This is typically market value, however may be a Discounted Option or Premium Priced Option.
FTSE 100
An index containing the 100 largest companies measured by market capitalisation, listed on the London Stock Exchange.
FTSE 250
An index containing the companies ranked 101 – 250 measured by market capitalisation, listed on the London Stock Exchange.
FTSE 350
An index containing the FTSE 100 and FTSE 250.
HMRC
Her Majesty’s Revenue & Customs (formed by the merger of the Inland Revenue and Customs & Excise).
Incentive Stock Option Plan (ISO)
A US Option Plan under which employees can be granted share (stock) options in the Company on favourable terms. Providing the Plan satisfies the US legislative requirements, and the shares are not sold until the end of a holding period of at least one year from the date of exercise and two years from date of grant, they will have favourable tax treatment.
Income Tax
This is a tax levied upon the income of individuals or entities. There is an annual allowance (£5,225 in the UK for the 2008/2009 tax year). The income tax regime in the UK is progressive – once the allowance has been exceeded, rates of 20% and 40% are applied within defined limits.
IPO (Initial Public Offering)
This is when a company issues public stock for the first time, and may occur when smaller companies are seeking capital in order to expand, or alternatively when larger privately-owned companies are looking to become publicly traded.
Lapse
The point at which the rights under an option or other award are no longer enforceable by the participant.
London Stock Exchange
The international stock exchange of the UK. A forum for UK and internationally based companies to raise capital and have their shares publicly traded. The market for equities is divided into the main market which the majority of shares are listed on and AIM, the Alternative Investment Market.
Long Term Cash Plan
A long term incentive plan which pays out in cash not shares.
Long Term Incentive Plan
A generic term for a share incentive plan typically used for senior executives that can take a number of forms such as Restricted Share Plan, Performance Share Plan or Deferred Bonus Plan.
Market Value
If the shares are listed, the average of mid market prices. Broadly the price a purchaser would have to pay to acquire the share.
Non-qualified Stock Option Plan
The US term for a share (stock) option that does not qualify for favourable tax treatment.
Participant
An employee who has been granted rights under a company remuneration plan.
Performance Share Plan
A type of Long Term Incentive Plan in which participants (typically executives and/or senior management) are granted rights to shares the vesting of which is subject to the satisfaction of performance conditions, typically measured over the vesting period, typically 3 years.
Restricted Share Plan
A type of Long Term Incentive Plan in which participants (typically executives and/or senior management) are granted rights to shares the vesting of which is subject only to the passing of time, typically 3 years.
Share Appreciation Right (SAR)
An arrangement similar to a share option but where the participant is entitled to receive the increase in value (between grant and exercise) typically paid in cash rather than being able to exercise the option.
Share Option
A right to buy a share at some time in the future at a price specified at the outset (the exercise price).
Short Term Incentive Plan
A variable annual incentive where the amount earned relates to performance measured over 1 year or less such as an annual bonus.
Un-approved Share Plan
This type of share plan has not gained approval from HMRC, therefore tax relief is not applicable. However, the share plan rules are consequently much more flexible.
Vesting (maturing)
In relation to an option, the point at which the option becomes exercisable by the participant. In relation to share awards, the point at which the participant becomes entitled to those shares. This may be subject to the passing of time and/or the achievement of specified performance conditions.
