Share Incentive Plans are all-employee, tax-advantaged share ownership plans. Companies can award each participant free shares worth up to £3,600 per year. Employees may purchase £1,800 worth of partnership shares from their pre-tax salary every year which can be matched with further free shares. Shares are held in a specially formed employee trust for at least three years.
What is a share incentive plan?
A Share Incentive Plan (SIP) is a share ownership plan under which an employer has three different ways of encouraging longer-term employee share ownership. Employees can be offered free shares worth up to £3,600 in value in each tax year and be given the right to buy partnership shares out of pre-tax income to the value of £1,800 per tax year. Further free shares, based on the number of partnership shares purchased (matching shares), can be awarded to the maximum value of £3,600 per annum.
Shares acquired under a SIP are owned by the participant from the outset subject to the rules of the plan. This means that, unlike a share option, the participant is a shareholder and can benefit from dividends and other rights from the date of the award. The shares are held for participants within a specially formed SIP trust.
SIP is an all-employee plan which means invitations to participate must be made to all full-time and part-time employees. It is possible to impose a minimum period of service although this must not exceed eighteen months.
While a company's SIP rules may allow it to provide free shares, partnership shares and matching shares, it is possible for the company to offer only one or two elements at any one time and the combination of elements offered can change from year to year. Dividends paid on shares held within the SIP trust may be used to purchase additional dividend shares.