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 conduct 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 reason for the high number may be due to the fact that the Large Cap companies generally have an international footprint in some countries where employees now expect shares as part of their remuneration package.
The main difference between Finland and Sweden from an employee perspective 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 super majority (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 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.
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 work force – particularly after mergers and acquisitions.
In the Nordics, where it can be challenging to recruit the people to your organisation, having shares as part of the remuneration package is also seen as a chief way to attract future employees.
In both countries share awards are taxed at the time of vest, when the employee gets to enjoy their benefit, or at 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 a lower overall taxation on the share assets. Each person should carefully investigate how the use of the ISK-account will impact their own taxes.
For companies in both countries, if they have a large international work force 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.
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, by 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: www.globalshares.com