Share Scheme & Financial Modelling
Over the last five years the cost of share schemes has become an increasingly important design consideration for companies. We have moved substantially from the position where share schemes were seen as a dilutive cost to shareholders with minimal impact on the company's Profit & Loss (P&L). There are now a number of accounting standards applying to share schemes such as UITF Abstracts 13, 17 & 25 all of which attribute in one way or another a cost to the sponsoring company. In addition, there is on the horizon, a new accounting standard which will result in a P&L cost for a company granting market value options.
We now find companies adding a second question when designing incentive arrangements and share schemes to the standard "Is our design and grant policy competitive in the market?"
"Can we afford it?"
Halliwell Consulting specialises in answering both questions. Our financial analysts can model the impact of all types of share incentive and retention schemes on a company's principal financial measures applying UK GAAP or US GAAP. Examples of the types of plans which can have a significant impact on a company's financials include:-
- Restricted Share Plans (commonly known as LTIPs).
- Deferred Share Bonus & Matching Plans.
- Co-investment Plans.
- Discounted Options (excluding SAYE).
- Inland Revenue Share Incentive Plans.
- Unapproved Option Schemes.
- Phantom Option Schemes.
- Cash Plans.
The questions Halliwell Consulting's analysts can answer include:-
- What is the impact of different numbers of participant?
- What is the impact of using different types of plan?
- What is the optimum grant policy for the company, taking into account market practice and cost?
- What is the potential shareholder dilution? Will the company be within its share scheme limits and ABI Guidelines?
- What is the appropriate funding policy for the company to adopt to meet its obligations under its share arrangements?
- What is the P&L cost of the company's share incentive and retention arrangements this year and for the next ten years?
- Are the arrangements cash generative or cash negative? What is the cash flow impact of the plans this year and for the next ten years?
- One of the most important questions. For a given set of assumptions what are the potential benefits to participants?
- How does the company manage the national insurance costs or savings? Does it pass both on to the employee? [halliwell consulting advises companies on agreeing national insurance elections for companies with the UK Inland Revenue]
- What is the impact on Earnings Per Share of the plans adopted, grant policy recommended and funding policy implemented? (this can have a double importance where one of the performance measures used for the share plans is Earnings Per Share).
Halliwell Consulting's ability to construct detailed financial models provides our customers with an advantage when it comes to:-
- Negotiating with the company's institutional shareholders on the introduction of new executive share plans and the proposed grant levels for awards.
- Justifying the company's arrangements to the market place in general.
- Managing internally the company's share incentive and retention programmes.
- Preparing detailed remuneration committee reports which will be required under the new legislation introduced for financial years ending after 31st December 2002.
- Communicating with the company's employees.
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