Employee share trusts are discretionary trust structures which are commonly established by companies to warehouse the company’s own shares and used in satisfaction of awards granted under a corporate share plan.
The party chosen to act as trustee to the employee share trust is a critical decision – and having a trustee who is independent to the share plan administrator can deliver a number of significant advantages – as Mark Le Saint, Director – Employer Solutions, explains…
- Specialist expertise is everything. Appointing a trustee on a best of breed basis means you will be working with teams of individuals whose core business is the provision of professional trustee services, as opposed to a one-stop-shop, where the provision of a trustee is ancillary to the plan administration. An independent trustee will work with a number of plan administrators and will have processes and procedures in place, to ensure a seamless service to the client and their employees.
- It is better to have clear distinction of duties. If the trustee and administrator are separate providers, there is less ambiguity of roles and less chance of there being a challenge under the UK’s Disguised Remuneration legislation (due to an accidental breach, or otherwise). This would be due to the trustee, as the holder of the shares used to satisfy awards, being completely separate from the administrator, who holds the details of all the individual awards granted to the participants.
- Avoid the unintended consequences. With an independent trustee in place, there is no danger of the management and control of the trust being deemed to have moved onshore (with the associated potential adverse tax consequences), due to the onshore administrator exceeding their remit and the offshore trustee not providing the required checks and balances. This most commonly occurs where the administrator starts to exert control over the trust assets, without formal recourse to the trustee. This cannot happen if the administrator needs to ask a third party, the independent trustee, as and when it requires any shares to be delivered, sold or returned.
- Avoid the potential for conflicts of interest. A trustee must always act in the best interests of the beneficiaries of the trust (broadly, the plan participants). An independent trustee is less likely to find itself conflicted, where disputes arise between participants and the administrator.
- Better detection of malpractice. An independent third party trustee means there is an additional stakeholder with oversight responsibility. This helps reduce potential for fraud or malpractice occurring and not being detected. Such independence is increasingly valued by internal risk committees and third party auditors.
- Your flexible friend. Having an element of flexibility on your side is always going to be preferable in a rapidly changing environment. To the extent there may be performance or service level issues with a trustee, an independent trustee is easier to remove and replace, than a trustee who is tied-in with the provision of other services.
These are just a few benefits of appointing an independent trustee – but in the world of employer solutions, approaches and objectives can be tailored, bespoke and unique, and it is vital that a model that suits your needs is discussed before it is implemented.
If you would like to find out more on how JTC Employer Solutions can help you please contact Mark directly.