- Company Share Option Plans are the traditional method of giving employees a personal interest in the
future success of a company;
- Options are granted at their current market value and can be tax-advantaged up to £30,000 per person;
- Options are exercisable after three years but usually only if performance conditions are met.
What is a Company Share Option Plan?
A Company Share Option Plan (CSOP) provides for the grant of options to employees (chosen at the discretion of the grantor) to acquire shares at a future date for a price that is fixed from the outset.
It is usual for a CSOP to be structured in two parts the first of which is a tax advantaged plan that can be used to grant options benefiting from favourable tax treatment. There is a limit on the value of shares that an individual can hold as tax advantaged CSOP options. This is currently £30,000 and is measured by reference to the market value of shares when the relevant option is granted. Options above this limit are granted under the second part of the plan which is drafted on broadly the same terms as the first but without the restrictions attaching to tax-advantaged plans.
The exercise price per share for a tax-advantaged CSOP option must be not less than its market value at the time of grant. It is usual for all CSOP options to be exercisable only after the third anniversary of the date of grant although earlier exercise is often permitted in specified 'good leaver' circumstances and on a change of control. Generally, a CSOP option can only be exercised if pre-determined performance conditions have been met or following the occurrence of an event, such a sale of the company, in which shareholders also realise cash.