Share incentive plan (SIP) administration

A share incentive plan or SIP is a type of tax-efficient employee share schemes available in the UK, aimed at providing employers with an easy and flexible way to offer shares in the company to their employees. Setting up and running a share incentive plan does come with challenges however – one of which is administration.

A quick introduction to Share Incentive Plan (SIP)

A share incentive plan (SIP) works by awarding eligible employees free shares and/or allowing them to purchase shares in the company. These shares are kept in a trust until the employee either leaves or decides to withdraw the shares from the plan. Head over to our article to learn more about how to set up a SIP.

Employees can be offered one or a combination of the following four share awards:

1. Free shares: Each employee can be offered free shares worth up to £3,600 annually.
2. Partnership shares: Employees can be invited to buy partnership shares via deductions from their pre-tax salaries. They can use up to £1,800* or 10% of their salary each year – whichever is less to buy these shares.
3. Matching shares: Where employees acquire partnership shares, companies can give them up to 2 matching shares for each partnership share they buy.
4. Dividend shares: If employees are paid dividends on their free, partnership or matching shares , those dividends can be used to buy more shares. These are dividend shares.

What does a job in SIP administration involve?

SIP administration is the process of enrolment, tracking and reporting any changes in ownership, processing transactions, updating documents and policies, communicating with stakeholders, staying compliant and a lot more.

Your share plan team is typically required to understand the accounting, tax, legal, and employee share scheme regulations. They must be able to work cross-departmentally and with various external parties in order to effectively administer their company’s SIP programs.

Which team is responsible for share plan administration?

According to a 2020 survey, over 70% of the companies report that the primary responsibility for the administration of their share plan is housed within their HR or compensation & benefits department.

As mentioned already running a SIP requires a wide range of skills and knowledge, not all of which might be readily available within one department or even across your employee base. In a recent in-house survey, we discovered that 63% of public companies choose to outsource all, or part of, their share-based compensation management to a professional third-party provider.

Let’s break SIP administration down

1. Gather all the necessary employee data to help figure out each individual’s eligibility, tax liability etc:
   If you’ve never launched a plan, when you’re gathering data from your participants, it’s important to do it in an organised manner and in accordance with any data protection rules or guidelines. If you are looking to switch share plan providers, you will need to be careful that no data is lost during the migration to your new plan.
2. Have a plan for your SIP:
   Companies can have multiple share schemes and awards running at the same time. Making sure plan rules, share value limitations and other rights and conditions are correctly implemented for each scheme and each individual grouping is crucial.
3. Tracking and processing day-to-day activities:
   Plan enrolment (i.e. must be open to all staff), receipt and allocation of employee contributions, share dealing (e.g. purchase, withdrawal and sale of shares), dividend management, employee termination, employee inquiries and a lot more besides.
4. Staying compliant:
   Ensuring that the plan remains legally compliant and in line with the legislation relating to the requirements of SIPs, e.g. the plan must be open to all eligible employees and every employee who is invited must be enrolled on the same terms. Note: The legislation can be updated anytime so share plan managers should keep abreast of any amendments. If you extend your SIP internationally, you will be required to stay compliant in each of these jurisdictions.
5. Dealing with global employees:
   SIP may work great for your UK-based employees but might not be suitable for the employees elsewhere who may have to pay local overseas taxes and local social security contributions on their share values. You may instead choose to consider country-specific plans that may be more tax efficient in those regions.
6. Handling documentation and reports:
   This includes everything from contracts, annual statements, annual HMRC returns, payroll and tax reporting and so on.
7. Communicate:
   Maintain clear and open communication with participants, internal and external parties at all stages.

Outsource SIP administration

As discussed, SIP administration is a complex process. You or your share plan team is required to track and report any changes in ownership, process transactions, update documents and policies, communicate with stakeholders, stay compliant and a lot more.

Alternatively, you can choose to outsource this complex function, either partially or entirely, to a share plan service provider. Doing so could free up time and effort and allow you and your employees to focus more on your core business.

At J.P. Morgan Workplace Solutions, we’ve helped companies from across the UK to customise their SIP administration solutions and tailor-make effective employee communication strategies. Contact us now for more information on how best to manage your SIP scheme.

By visiting a third-party site, you may be entering an unsecured website that may have a different privacy policy and security practices from J.P. Morgan standards. J.P. Morgan is not responsible for, and does not control, endorse or guarantee, any aspect of any linked third-party site. J.P. Morgan accepts no direct or consequential losses arising from the use of such sites.