- Performance Share Plans offer executives the opportunity to acquire shares in a company by reference to its success measured against performance targets;
- Participants are granted options at an exercise price set at nil or nominal value;
- Options are exercisable after three years subject to the satisfaction of performance conditions.
WHAT IS A PERFORMANCE SHARE PLAN?
A Performance Share Plan (PSP) is the term often used for arrangements that give executive directors and senior employees an opportunity to acquire free shares at a future date dependent on the satisfaction of performance criteria.
It is usual to structure PSP awards as non tax-advantaged share options with an exercise price of nil or a nominal amount. The plan rules will, however, generally be drafted to enable the grant of awards in a variety of other ways such as those that vest automatically without the need to exercise them. This gives a company the flexibility sometimes needed when using the plan in different jurisdictions.
However they are structured, PSP awards will only vest if performance conditions are met. These are usually measured over a period of at least three years and it is increasingly common for vested awards to be subject to an additional two-year holding period.