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Performance Share Plans

With effect from Year of Assessment 2007, deductions will be granted to employee stock options granted through treasury shares to facilitate share-based compensation schemes.

During the budget speech on 17 February 2006, Prime Minister and Finance Minister Lee Hsien Loong announced that since share-based compensation schemes form a part of staff costs, a tax deduction will be granted to companies that have incurred actual outlay for the employee stock options and other share-based compensations.

This change in Singapore’s tax regime has led to a rise in the use of performance share plans (PSPs) as opposed to share option plans by Singapore listed companies. If treasury shares are not used, companies will not be able to enjoy this tax deduction. (The Business Times, Monday 04 December 2006)

Several other factors have contributed to this shift to PSPs - the issue of stock options must now be reflected as an expense in companies’ income statement under the latest accounting rules, and the valuation of share options has proved complex and problematic in the past.

Credit Suisse noted in a report issued earlier this year that as a result of this budget announcement, performance shares will have the same tax benefits as cash compensation but can achieve the objective of aligning the interests of employees with those of the company. They predicted that companies will increasingly switch to PSPs issued using treasury shares from share buybacks.

Credit Suisse also noted that this may result in a virtuous cycle in that as companies undertake share buybacks for treasury shares to fulfill the needs of performance plans, "this not only serves to support the share price but also helps to lift accounting return on equity" and the higher return on equity in turn helps to "justify a higher amount of performance share plan shares to be awarded for the next period".

For companies intending to adopt a PSP, careful consideration must be given to the plan structure and the complications that may be introduced by any share option plans that the company may already have in place.

If you would like to put in place a PSP to align the interests of management with those of shareholders and enjoy a boost in your company’s share price, do give us a call. We can tailor a plan to fit your company’s needs and align it with your business plan and objectives.

For more information, please contact Max Ng at max.ng@gateway-law.com or Chin Hooi Yen at chin.hooiyen@gateway-law.com


Gateway Law is a regional law practice based in Singapore, specialising in Intellectual Property matters including anti-counterfeiting, enforcement, licensing, franchising and other forms of commercialisation of intellectual property. The firm also has expertise in information technology and communications law, media and entertainment, and in the life sciences. The name Gateway is symbolic of the firm's desire to be a gateway to success for all its clients. More information on the firm and its services are available at www.gateway-law.com



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