How to manage your equity incentives with Remote

If you’re building a benefits stack for your global team, equity incentive plans are a great option. They foster engagement and emotional investment across your workforce, making it easier to attract and retain top talent.

However, equity incentives also come with a whole lot of questions and concerns — most of which are related to the tax implications for your business.

In this article, we’ll go through some of these management challenges and explain how we can help you overcome them — and save you valuable time and resources in the process.

So, let’s get straight to it.

What is an equity incentive plan?

An equity incentive plan is a scheme that provides employees with the option to acquire company shares.

Here are some common stock options typically available in an equity incentive plan:

• Restricted stock awards (RSAs). RSAs are shares of company stock. They’re usually granted to employees with certain conditions, like the completion of vesting periods.

Note: A vesting period is the amount of time an employee must work for a company to keep or gain access to their shares.

• Restricted stock units (RSUs). RSUs are also shares of a company's stock, but the employee only owns them after the vesting conditions are met. There's no upfront cost, and the value is tied to the company's performance.

• Phantom units. This stock plan grants employees a cash award equivalent to a specific number or fraction of company shares, multiplied by the current share price. The amount is typically represented by hypothetical units, known as phantom shares or shadow stock, which mirrors the stock price.

• Incentive stock options (ISOs). ISOs allow employees to retroactively buy shares at a discounted rate — often below market value. If business goes well, employees can increase their stock prices considerably.

• Non-qualified stock options (NSOs). NSOs are stock options that don’t qualify for special tax treatment. They’re valued based on the fair market value from the grant date — the difference between this and the exercise price is subject to ordinary income tax.

• Stock appreciation rights (SARs). SARs give employees the right to the cash equivalent of a stock’s price increase over a specific time period. It means that employees can make money from a stock price increase without having to buy stock.

• Performance share units (PSUs). PSUs are tied to specific performance goals rather than a vesting period, like financial targets. An employee gets a number of shares based on the achievement of these goals, making them a common choice for executives and senior managers.

How do equity incentive plans benefit you and your global workforce?

Thinking about launching an equity incentive plan but not sure if it’s worth it for a global team? Don’t worry — below, we outline some of the reasons equity incentives are especially beneficial for global, distributed teams to help you make an informed decision.

Appeal to potential candidates

An enticing equity incentive program can help you attract a wider range of potential candidates to your global workforce. How? By allowing you to stand out from the competition.

For example, imagine someone is looking for a job. They compare salaries, benefits, career progression, and so on to choose the best position. If your company offers an impressive EIP but other companies don’t, then you’re more likely to be an attractive option.

As a result, your company appeals to a wider range of candidates, helping you develop a skilled and versatile workforce.

Increase employee retention

Research from Gallup found that pay and benefits are the most common reasons employees left their jobs in 2023. So, what better way to encourage employees to stick around than with a benefit that also has some monetary value? It’s a win-win.

Plus, most incentive plans have a set vesting period in which ownership is gradually transferred from company to employee. This provides an incentive for the employee to stay with your company for that amount of time.

Create a dedicated workforce

When people own a stake in the company, they have a personal interest in the company’s success.

Think about it — as the business succeeds, an employee’s equity increases. This fuels motivation, creating a dedicated workforce that wants the business to thrive.

But don’t just take our word for it. Studies show that employees are more motivated to perform hard work to meet their equity incentives. The same study even found that equity incentives for high-level managers can have a positive impact on operational performance.

What are the main challenges of managing equity incentives for a global team — and how can they be solved?

Financial incentives are ideal for creating a culture of shared purpose and entrepreneurship in your team — especially if you’re a small business or startup. They’re also an excellent way to generate additional capital, either through the purchase of shares or the diversion of resources.

But underneath its shiny hood is a complicated machine.

Whether you're setting up restricted stock units (RSUs) or an employee stock ownership plan (ESOP), here are some potential obstacles to consider.

Exposure to tax and securities laws

Compliance is a massive part of equity management. There are a whole host of tax and securities laws to abide by, and failure to do so can result in all kinds of fines, penalties, and reputational damage for your organization.

In the UK, for example, an employer can give employees up to £3,600 worth of free shares in any tax year. If they exceed that limit, they could receive fines and penalties from HMRC.

To make things more complicated, these tax laws vary in each country. What might not be an issue in Germany could be a major problem in Japan. There’s no one-size-fits-all approach to managing your global tax obligations, and it can be daunting to know where to start.

Don’t forget that these laws change, too — frequently, in some countries. For example, legislative changes in Portugal significantly impact the rules around equity taxation for startups. If you had employees in Portugal, this might affect your tax obligations and expose you to potential jeopardy.

Without qualified, vigilant, country-specific tax experts, you run a huge compliance risk.

How Remote can help: Our global team of tax specialists knows every compliance law and monitors every relevant change in each country we operate in. If you’re hiring in Malaysia, for example, one of our in-house experts in Kuala Lumpur will assist you — we won’t outsource your needs to a third party. If a taxable event is occurring, or you have a tax liability, we’ll explicitly and promptly inform you.

We’ll also let you know exactly which actions you need to take — from the name and location of the form you need to fill out to the definitive decisions you’ll need to make. And if you’re unsure, we’ll do everything we can to support you.

Tax reporting and withholding

One of the key tax obligations of equity incentives is the legal requirement to report and withhold your employees’ taxes.

In France, for example, companies collect withholding taxes along with Social Security contributions. A withholding tax rate applies to each amount they pay to an employee (such as wages).

The withholding tax must be declared each month on the Single Staff Reporting Statement (DSN), which is filed by the 5th or 15th of the month following payment of the income — but this isn’t the same in every country.

Without a local expert to guide you, this process can be full of potential pitfalls. You can, of course, hire your own local tax consultants to help you submit the paperwork, but this is a costly and time-consuming process.

And, given the consequences of failing to report and withhold your people’s taxes in most countries, you can end up in very hot water if you make a mistake.

How Remote can help: Unlike many EOR providers, we perform all the reporting and withholding of your tax liabilities arising from equity incentive taxable events. That’s right — you don’t need to do anything. This service is just another part of our all-in-one global HR service.

Not only does this save you a significant amount of time and resources, but it ensures that your compliance is watertight. In some countries, the law is quite clear about who is responsible for reporting and withholding, whereas in others, there’s a lot of ambiguity.

By taking a consistent approach everywhere, we ensure that this important requirement is handled and completed correctly and on time every time.

Specialist tax requirements

Some countries offer specialized tax withholding systems for equity incentive schemes, which raises two potential issues.

First, you may not be aware of such regimes, or there may be a lack of clarity around eligibility criteria. If a program is beneficial to your organization, you could be missing out on potential tax savings. Alternatively, if a particular situation requires you to take action, you could be running the risk of non-compliance.

For example, in the UK, employees can pay their equity-related taxes earlier to reduce larger bills in the future. This situation — known as a section 431 election — almost always triggers a taxable event.

Secondly, navigating such regimes can be complex and resource-intensive. Without intimate knowledge of how they work, you can easily make mistakes or lose time and resources trying to understand and submit everything.

How Remote can help: Thanks to our deep local expertise, we can help you easily navigate special tax withholding regimes in multiple countries. Remote ensures that you know about any unique regulations and provides the exact steps you need to take, depending on how you want to manage such a situation.

Dealing with multiple providers

Unless you’re a major multinational, it’s unrealistic to have your own in-house tax and legal teams in every country you hire in.

For example, if you work with employees across multiple countries, it takes a lot of time, work, and money to have in-house tax and legal teams in each location. As a result, you have to deal with multiple third-party vendors instead, all of whom offer different services, charge different rates, and provide varying levels of reliability.

But finding reputable providers — and managing your relationships with them — is a massively time-consuming process.

There also needs to be a strong element of trust. This is difficult in any market, but even more so in foreign environments where you may not have the right level of local knowledge and experience.

How Remote can help: Remote has its own in-house, on-the-ground specialists in every country we operate in. Instead of navigating the chaos of dealing with multiple third parties, you only deal with your account manager at Remote — no matter how many countries you hire in.

This makes communication and management simpler, ensuring that you have a consistent, high-quality experience with your employees in every country.

Employee eligibility

It’s crucial to make sure that your employees are eligible for your chosen plan, wherever they are in the world. Otherwise, you run the risk of creating iniquity in your global benefit offerings. This can be hugely demotivating for existing employees, and off-putting to potential hires.

Take ISOs as an example. Foreign employees aren’t typically eligible for these shares — but in some cases, they are.

For example, if an employee works for a qualifying US company, they can receive ISOs. However, depending on the tax legislation of the employee’s country, they may not receive the tax benefits that US employees receive with ISOs.

You also need to avoid employee misclassification, as this can lead to fines, penalties, and back taxes.

Top tip: Use our misclassification tool to check employee eligibility.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How Remote can help: Once you’ve created a global equity incentive plan, we review it to check that your employees are eligible to receive the stock options. We look for:

• Potential co-employment risk (which can carry significant legal consequences)

• Any terminology in the plan agreement that might accidentally prohibit the employee from receiving their options

After that, we work together to identify taxable events, and Remote handles the rest!

Manage your equity incentive plans with Remote

When it comes to managing your global equity incentive plan, it’s important to understand the exact level of support you’ll receive from your global employment partner. Equity incentive taxes are complex, and you don’t want to be hung out to dry when a taxable event or liability occurs.

If you’re running (or planning to run) an equity incentive scheme for your global workforce, Remote provides a best-in-class support service. We have the know-how and the experience to help you navigate local tax obligations in every country where you hire, avoiding any nasty surprises in the process.

To find out more, schedule a free consultation with one of our experts — and see how our equity incentive services can help you attract and retain the best talent in your industry.

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