Q: How common are Employee Share Ownership Plans in Finland and Sweden?
Employee share plans are common in both Finland and Sweden, but I would say that they are more widely used in Sweden. We also see more Stock purchase plans in Sweden than in Finland, but the trends show that Finland is beginning to mirror Sweden. In the future, I expect to see more uniformity between the two countries.
In Sweden, PwC conducts a regular study of the listed companies and their share programs. Their data shows that the majority of the Swedish Mid and Large Cap companies have a share-based program for their employees. The high number may be because the Large Cap companies generally have an international footprint in some countries where employees now expect shares as part of their remuneration package.
Q: What are the main differences between Finland and Sweden in this regard?
From an employee perspective, the main difference between Finland and Sweden is that Finnish nationals must hold Finnish stock in a book-entry account in Finland.
As such, they are not allowed to hold Finnish stock in a nominee account. This has a big impact on the administration processes for the share program as each employee who wants to participate in a program, must open their own book-entry account and provide the required documentation for the KYC (Know Your Client) and AML (Anti Money Laundering) procedures.
This requirement does not exist for Swedish nationals holding Swedish stock, so the set-up of the plan is simpler from an administration perspective.
On the other hand, all Swedish share plans must be approved by a supermajority (90% of the votes) during a company’s AGM. This can sometimes be challenging for the company to obtain as institutional owners tend to vote against too generous employee share schemes.
Why?
Because they are seen to dilute the value of the stock and are not regarded as a benefit for the general shareholder. This is probably why many of the Swedish share purchase programs are very similar in their design – a design that has proven to be acceptable to the shareholders and that will be approved at the AGM.
Q: How open-minded are Finnish/Swedish companies to the benefits of Employee Share Ownership Plans?
I would say that Finnish and Swedish companies are very aware of the benefits of share programs. They understand that share programs align the employees’ interests with the general shareholders´ interests and therefore provide a “corporate glue” for the workforce – particularly after mergers and acquisitions.
In the Nordics, where it can be challenging to recruit people to your organisation, having shares as part of the remuneration package is also seen as a chief way to attract future employees.
Q: How are employees taxed in Finland/Sweden?
In both countries, share awards are taxed at the time of vest, when the employee gets to enjoy their benefit, or an exercise of stock options – not at grant.
Both Finland and Sweden have some of the world´s highest taxation on income, so it would be very difficult for companies to use share programs as an incentive if the taxation was charged at grant as the risk of forfeiture is high at that time.
To cover the tax liability, some companies use a transaction called “sell to cover” which sells some of the shares that are vesting to cover the taxes due.
Some companies give employees both a cash award and a share award with the idea that the cash award will be used to pay the employee´s tax liability for the share award, and the employee receives the gross number of shares awarded. Both countries apply a similar capital gains/capital loss taxation when selling shares post vesting.
Swedes have the possibility to move their shares to an ISK account (Investeringssparkonto), which is taxed differently than a normal brokerage account and, in some cases, will give lower overall taxation on the shared assets. Each person should carefully investigate how the use of the ISK account will impact their own taxes.
Q: What are the main obstacles that Swedish and Finnish businesses face when launching their first Employee Share-Ownership plans?
For companies in both countries, if they have a large international workforce outside of their home country, it may be difficult for their employees to understand the value of holding a stock that is trading on a stock exchange; different currency, different time zone etc.
This can be overcome with a clear and concise communication strategy for the launch of the plan.
In Sweden, the main obstacle relates to AGM approval. As mentioned earlier 90% of the votes at the AGM are required to get approval for the plan. I have heard of instances where a company has not been able to get their first plan accepted at the annual AGM and have had to go back the following year or organise an Extraordinary General Meeting to get the approval.
Q: What is the one piece of advice that you would offer a company that is looking at ESOP’s for the first time?
Involve your share plan administration service provider as early as possible in the process, before you go to the AGM to get your final approval. Your service provider can give you useful and practical advice on how the plan rules wording will impact the administration processes around the plan.
Most importantly, making a few adjustments and tweaks before the plan rules are fixed can save a lot of time for all parties and give your employees a smooth experience with their share plan.
Learn more about how Global Shares’ share plan administration services can transform how your employee stock plans are managed.
Please Note: This publication contains general information only and Global Shares is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. The Global Shares Academy is not a substitute for professional advice and should not be used as such. Global Shares does not assume any liability for reliance on the information provided herein.
