Understanding Employee Share Ownership Plans (ESOPs) and Long-Term Incentive Plans (LTIPs) for Listed Companies in the UAE.

In the UAE several companies are listed on exchanges. Some of the reputed and leading exchanges of UAE are the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM).Recently, they are all exploring Employee Share Ownership Plans (ESOPs) alongside Long-Term Incentive Plans (LTIPs). Their motive is to implement them as strategies. It is done to attract and retain the top employees. You can hire UAE based Emirati Advocates and Legal Consultants for a legal support or help. These Emirati Advocates are the best in their knowledge and work domain.

This article is a comprehensive guide to ESOP AND LTIPs. The article will provide you with a detailed overview of the main rules concerning the scheme. It also introduces the key steps involved in implementing and managing the plans.ESOPs and LTIPs are considered to be essential tools for companies in the UAE. The intent is to seek and retain valuable employees within the company.

These plans offer employees the golden opportunity to have an interest in the company. Besides, it provides the employees a chance to receive performance-based rewards over the long term. The UAE’s legal framework governing these plans is outlined in the Article of the Federal Decree-Law. The laws are elaborated in Commercial Companies (CCL) and Articles of the SCA Chairman Resolution on the Regulations for Issuing and Offering Shares of Public Joint Stock Company.

There are eligibility Conditions and criteria for the UAE-listed companies. Before implementing an ESOP or LTIP. The companies must fulfill the conditions, here they are listed Below:-

The company’s operating in UAE capital must be fully paid. The incentive shares are issued under a proper scheme. It states that it should not exceed 2.5% of the paid-up capital. 

Additionally, the scheme requires adequate approval from the relevant authorities including Securities and Commodities Authority (SCA). Before it is presented to the company’s general meeting, approval is mandatory.

The company’s board of directors is held responsible to submit the scheme and its terms. The submission is done to the general meeting for approval. The approval is given through a special resolution. It requires at least 75% of the attending votes needed for approval.

There are certain key Terms of Documentation that are of paramount importance. The terms of the ESOP or LTIP must include the essential elements within them, and here they are stated below:

The number of incentive shares that are issued and the maximum allowable under the scheme. The scheme’s duration should be between three to ten years. 

There are clear, vivid, and measurable conditions applied for employees who can participate in the scheme. Not all the employees can take part in the schemes. There is a maximum entitlement for each job category of participants who can take part in them.

There is a requirement of an annual disclosure. The disclosure is related to the number of incentive shares allocated to each employee under the scheme. Furthermore, there is a complete mechanism for the calculation of the issue price of incentive shares in the scheme.

There is a described Distribution mechanism of incentive shares. Also, there is a restriction over the maximum number each employee can receive under the scheme. There are Performance objectives for the scheme’s effective period. Normally, they are associated with company and employee performance.

The formation of a committee includes Human Resources, financial, and legal specialists. The committee will be overviewing the implementation of the scheme. 

Additionally, they will oversee the procedures for review, control, and governance. It is done to ensure fair and just implementation of the scheme. There are proper well-defined provisions for termination, postponing, or removal of participating employees from it.

If we proceed further we will see proper eligibility criteria along with the exclusion of Employees in the scheme. the employee’s participation in the scheme is open. The permanent employees must have been associated with the company for 2 years time.

Employees can participate through contracts and agreements in the scheme. It outlines the terms of their involvement in it. However, employees holding substantial equity in the company (5% or more) or associated groups are not included. 

Furthermore, some other excluded employees are board members, temporary or seconded employees, and those with imminent retirement.

Some of the Post-Issuance Considerations in the scheme are the following: The companies may choose to launch multiple schemes.

The total incentive shares are issued that must not be more than 10% of the total paid-up capital. The companies are obligated to disclose scheme-related data in financial statements. The government reports also include the employee details and incentive share values.

The companies may choose to outsource scheme management to third parties. However, it is subject to SCA approval. The third parties may include entities like the exchange or authorized custodians. All the management activities must be reviewed, overviewed, and audited by the company’s auditor.

Amendments to the Scheme are also possible under the following conditions:

Any changes to the scheme’s terms need proper approval. Furthermore, the board members cannot unilaterally modify the terms and conditions of the scheme.

Lawyers, attorneys, and consultants can assist you in this regard. They have the expertise and experience in the UAE market. They are well aware and familiar with the regulatory landscape of UAE. 

Therefore, they can provide invaluable guidance in drafting scheme documents. They are capable of managing interactions with the SCA and also take up the work of applications and approvals. 

They are also responsible for preparing the documents and paperwork for general meetings. Besides, they also coordinate the applications and approvals in the schemes. They collaborate with exchanges for share issuance to ease out the procedure.

Additionally, they also offer legal advice, support, and guidance throughout the procedures. Nonetheless, ESOPs and LTIPs are valuable and imperative tools for UAE-listed companies. They are highly in use to attract and retain top talent within the company for a long time.

Nevertheless, careful adherence to legal requirements and proper planning can ensure a successful scheme. Adequate implementation will benefit the companies and employees.

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