Employee Share Option Plan (ESOP)
The ESOP holds in excess of 98 million ordinary shares or 5% of the ESB in trust for more than 10,000 current and former employees, (the ratio of current to former employees is of the order of 3:2). The Trustee Board consist of four union nominees and one alternate, two management nominees and one alternate, Secretary and an independent Chairman (Legal Professional). The last notional allocation of shares took place in 2002 completing the full allocation of the 5% shareholding.
Preparing for the internal market
ESOP has been working on arrangements to allow ESOP participants to trade their shares in an internal market. In moving to an internal market mechanism, shares held in trust for participants will be appropriated through the Approved Profit Sharing Scheme (APSS). This process will mean that up to 50% of the total share allocation held in trust will be transferred into the individual ownership of the participants. The ESOP will then initiate an internal market where individuals can decide to sell or, if they are able to do so, to offer to purchase shares at a price they themselves set. As individual owners of appropriated shares, participants will automatically receive any dividends paid by ESB.
In 2009, ESOP had intended to appropriate shares and operate an initial internal market. However, the trustees, with the agreement of participants, decided to postpone this in light of the uncertainty over the future of a significant component of ESB's asset base - the transmission assets. The ministerial decision on the transmission assets should now speed up the transition to the internal market.
Preparations are advancing for the commencement of an internal market towards the end of 2011. Prior to the appropriation, a valuation of ESB will take place. This is a Revenue requirement to enable a value be put on the share for taxation purposes. The value at subsequent internal markets will depend on what participants eligible to trade are willing to pay. There will be a potential Capital Gains Tax (CGT) liability on the sale of the shares based on the sale price referenced to the appropriation value of the shares. Participants who no longer work at ESB or one of the participating sub-companies, will be forced to dispose of their shares through the internal market within a fixed period following the appropriation date, or on a voluntary basis prior to those deadlines.
Impact of Budget 2010
As a result of the budget changes and the introduction of the Universal Social Charge (USC) on all income including share distributions and appropriations, there is a latent liability on shareholders to pay this charge on the value of share appropriations. Such a charge is usually administered by the employer. However, the ESB share issue is complicated in so far as the ESOP holds the shares in trust for participants, but is not an employer. ESOP has approached the Department of Finance and the Department of Communications, Energy and Natural Resources to seek clarification and, if possible, a concession on USC liability in light of the imminent appropriation of 50% of the shareholding. (If applied, the liability per individual beneficiary could be in order of up to €7 on every €100 of shares appropriated.)
At the outset of the ESOP, the Tripartite Agreement between the Government, the Company and ESB Unions provided for an Employee Share Plan that offered a tax free/tax efficient scheme, as long as qualifying conditions were met.
New Participants
A mechanism to enable new employees to join ESOP will also be a feature of this upcoming market. This is particularly welcomed by ESPA as a significant number of our members are currently not able to become ESOP participants.
More information
For up to date information on the ESOP please visit the ESOP website and watch out for the ESOP correspondence issued to its members.