Fundamentals of Performance Share Plan

Fundamentals of Performance Share Plan

Fundamentals of Performance Share Plan

Performance Share Plans (PSPs) have emerged as a crucial component in driving corporate success and aligning employee interests with business objectives in Hong Kong. As a sophisticated form of Employee Share Option Plan (ESOP), PSPs in Hong Kong are designed to offer long-term incentives to employees. In this essential guide, we delve into the fundamental knowledge of PSPs and how they can strategically improve business performance, leveraging their power for long-term growth and success.

Introduction of Performance Share Plan (PSP)

Hong Kong’s corporate landscape is highly competitive, which makes Performance Share Plans (PSPs) an essential tool for aligning executive and shareholder interests. PSPs, a form of Employee Share Option Plan (ESOP), are long-term incentive plans where employees, typically senior management, receive shares based on achieving pre-defined performance targets. An ESOP is a broader concept where employees are granted options or shares, contributing to their direct investment in the company’s growth. This approach ties executive compensation directly to the company’s success, incentivising strategic decision-making and long-term value creation. Implementing a tailored ESOP service can effectively manage these plans, ensuring they align with the company’s goals and effectively incentivise  employees in Hong Kong’s dynamic market.

Understanding Performance Share

Performance shares represent a form of stock-based compensation awarded to employees. These shares are contingent on meeting certain performance benchmarks that align with the company’s strategic and financial objectives. Typically part of a long-term incentive plan, performance shares vest when employees successfully meet or exceed these pre-defined goals. This practice, widely adopted by companies listed on the Hong Kong Stock Exchange, effectively merges employee rewards with the company’s overall performance. In a market known for its competitiveness, this approach of leveraging performance shares serves as a key strategy for fostering sustainable business growth and aligning employee efforts with shareholder value.

Understanding Performance Share

Types of Performance Metrics Used in PSP

Different metrics can be applied to determine the vesting of performance shares, each catering to various aspects of a company’s objectives.

Total Shareholder Return (TSR) Performance Shares
TSR Performance Shares are based on the total return a company delivers to its shareholders, covering both stock price appreciation and dividends. This metric is particularly relevant in Hong Kong’s stock market-driven economy, where shareholder return is a prime focus.
Earnings-Based Performance Shares
Earnings-Based Performance Shares are tied to the company’s profitability metrics, such as earnings per share (EPS) or net income targets. This type of PSP is crucial in Hong Kong’s business environment, where robust financial performance is a key indicator of company health and executive effectiveness.
Strategic Goals Performance Shares
Strategic Goals Performance Shares are linked to non-financial and qualitative objectives like market expansion, product launches, or sustainability goals. In Hong Kong, where companies are increasingly focusing on long-term strategic objectives and corporate social responsibility, these performance shares align executive efforts with broader company goals.
How Performance Share Plans Work

How Performance Share Plans Work

Performance Share Plans (PSPs) function as a strategic employee share award scheme, intricately linking employee compensation to the company’s performance. Within a PSP, employees are granted shares at the outset of a multi-year plan, typically spanning three to five years. However, these shares only vest upon the fulfilment of specific performance criteria within this period. This model is designed to drive employees, particularly executives, towards achieving long-term strategic objectives rather than focusing on immediate gains. The success in meeting these objectives is meticulously assessed before the vesting of shares, ensuring that employee rewards are directly proportional to the value they add to the company and its shareholders. Governed by Hong Kong’s company and securities laws, including the Companies (Winding-Up and Miscellaneous Provisions) Ordinance and the Securities and Futures Ordinance, PSPs in Hong Kong are often administered by experts to ensure precision and efficiency. This approach not only aligns with corporate performance but also plays a crucial role in attracting and retaining talent, particularly in companies on the trajectory toward an Initial Public Offering (IPO).

Advantages of Performance Shares

Advantages of Performance Shares

Performance shares in Hong Kong’s corporate arena bring a multitude of benefits.

Aligning Interests and Motivating Employees
Performance shares in Hong Kong are instrumental in aligning the goals of employees with those of shareholders. These share schemes not only motivate staff but also play a crucial role in talent retention. By tying substantial parts of compensation to the company’s performance, employees are encouraged to focus on long-term success, aligning their efforts with shareholder interests.
Easing Working Capital and Cash-Flow Constraints
Performance shares, as a type of Employee Share Option Plan (ESOP), provide financial relief by reducing working capital requirements and easing cash-flow constraints. This substitution of cash remuneration with shares allows companies in Hong Kong to preserve liquidity, offering a sustainable cost-cutting strategy crucial for business survival in the city’s dynamic economic landscape.
Offering Better Tax Advantages
Performance share plans in Hong Kong also come with preferable tax implications compared to traditional cash-based compensation. This tax efficiency is beneficial for both the employees, who receive more value from their compensation, and the company, which sees improved financial health. This advantage makes performance shares an appealing option from a fiscal standpoint.
Attracting and Retaining Top Talent
Additionally, performance shares are a powerful tool for attracting and retaining high-calibre professionals. The promise of significant financial rewards for meeting key business objectives makes these plans attractive to ambitious employees. In Hong Kong’s competitive job market, this aspect of performance shares is invaluable for companies looking to secure the best talent.

Performance Share Restrictions

Performance shares come with certain restrictions, like a vesting period and specific performance criteria that must be met. These restrictions ensure that the executives’ focus is aligned with long-term value creation. In Hong Kong, where the regulatory environment is stringent, these restrictions also comply with governance standards and protect shareholders’ interests.

For businesses looking to navigate these challenges effectively and implement Performance Share Plans successfully, consider talking to BoardRoom’s experienced team for consultation. Our services are tailored to help companies manage the complexities and adhere to the legalities of Performance shares and Performance Share Plans efficiently.

Frequently Asked Questions (FAQs)

Can performance shares decrease in value?

Yes, performance shares can decrease in value if the company’s stock price drops. This risk aligns executive compensation with company performance and shareholder experience, highlighting the inherent nature of these shares as a reflection of the company’s actual market performance and emphasising the direct impact of corporate decisions on executive rewards.

Are there tax implications for receiving performance shares?

In Hong Kong, receiving performance shares can have tax implications. When shares vest, they are considered income and are subject to income tax. Recipients need to understand these implications and plan accordingly. To effectively navigate and manage these tax responsibilities, recipients should consider utilising tax filing and advisory services, which can provide expert guidance and ensure compliance with local tax regulations.

Can performance share plans be customised for different employees?

Yes, performance share plans can be tailored to suit the roles and responsibilities of different employees. In Hong Kong, customisation of PSPs allows companies to align the incentives with specific roles, driving performance in areas critical to the company’s success.

Contact BoardRoom for more information:

Jason U

Managing Director Asia, Share Registry Services and Employee Plans Services

E: [email protected]

T: +852-2598 5234

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Deep Dive Into Restricted Share Plans

Deep Dive Into Restricted Share Plans

Deep Dive Into Restricted Share Plans

Restricted Share Plans (RSPs) have taken centre stage as a key mechanism for fostering employee loyalty and driving organisational success in Hong Kong. In this guide, we explore the essentials of RSPs, their role in aligning employee efforts with corporate goals and their impact in cultivating a committed and performance-driven workforce.

Introduction of Restricted Share Plans (RSP)

In Hong Kong’s rapidly evolving corporate world, Restricted Share Plans (RSPs) are emerging as a key strategy for attracting and retaining top talent. RSPs offer a blend of immediate and long-term incentives to employees by granting them company shares under certain conditions, such as staying with the company for a specified period or achieving performance goals. This approach aligns the interests of employees with the company’s long-term success, fostering a culture of ownership and commitment.

Understanding Restricted Shares

Restricted shares are company stocks awarded to employees as part of their compensation package, but with a catch – they come with restrictions. These restrictions usually involve a vesting period during which employees cannot sell or transfer the shares. The idea is to incentivise employees to remain with the company and contribute to its growth over time. In Hong Kong’s competitive business environment, they serve as a powerful tool for companies looking to build a loyal and motivated workforce.

Understanding Restricted Shares

Types of Restricted Share Plans

Restricted Share Plans are tailored to suit different business needs and employee incentives. These plans come primarily in two forms: Restricted Stock Awards (RSAs) and Restricted Stock Units (RSUs), each with its unique characteristics and benefits.

Restricted Stock Awards (RSAs)
Restricted Stock Awards (RSAs) in Hong Kong are a compelling form of equity compensation, where employees are granted company shares either for free or at a significant discount on the grant date. Upon receiving RSAs, employees instantly become shareholders and gain voting rights, embedding them deeply within the company’s future. This immediate ownership is balanced by vesting conditions, meaning employees can’t sell their shares until certain requirements, like tenure or a liquidity event, are met. In startups, employees receive these awards at a low fair market value (FMV) with the potential for substantial growth in value, making them a powerful incentive. However, employees might need to pay upfront for these shares, albeit at a potentially lower value than their future worth. The chance to ‘buy low and sell high’ with RSAs creates a compelling wealth-building opportunity for early-stage company employees.
Restricted Stock Units (RSUs)
Restricted Stock Units (RSUs) represent a promise to grant company shares at a future date, possibly at no initial cost to the employee. This future-focused approach is particularly prevalent in established companies in Hong Kong, where share values are already significant. RSUs are tailored to retain talent by binding the reward (shares) to future company performance and the employee’s ongoing commitment. Unlike RSAs, RSUs don’t grant immediate voting rights or dividends, as actual shares are not issued until vesting occurs. The vesting of RSUs often relies on meeting specific conditions like a time-based clause, ensuring long-term alignment of employee and company goals. For employees in private companies, ‘Double-Trigger Vesting’ of RSUs is a critical feature, wherein vesting is contingent not only on the passage of time but also on a public offering or sale of the company, mitigating potential tax issues associated with owning shares that can’t be readily sold. This mechanism is vital in Hong Kong’s dynamic market, where many startups aspire to go public or be acquired, and it protects employees from financial risk while still incentivising them with the promise of future equity.
How Restricted Share Plans Work

How Restricted Share Plans Work

In Hong Kong’s business context, Restricted Share Plans (RSPs) are designed to align the interests of employees with the long-term objectives of the company. These plans operate by granting employees company shares, subject to specific conditions such as remaining with the company for a predetermined period or achieving set performance goals. This conditional approach serves multiple purposes.

The tenure-based milestones in RSPs are vital in fostering employee loyalty and retention. By tying the vesting of shares to the duration of an employee’s service, companies in Hong Kong effectively encourage their workforce to commit to longer tenures. This strategy is particularly beneficial in the city’s fast-paced job market, where retaining skilled talent can be challenging.

Performance targets included in RSPs act as powerful motivators. Employees are incentivised not only to meet but exceed their performance goals, knowing that their efforts directly contribute to their personal financial growth through vested shares. This performance-based vesting criterion ensures that the company’s success is closely linked to the employees’ achievements, creating a mutually beneficial environment.

Upon meeting these vesting conditions, the shares transition from being ‘restricted’ to fully owned by the employees. This transition marks a significant milestone in an employee’s journey with the company, symbolising mutual commitment and shared success. The moment of vesting represents not just financial gain for the employees but also an acknowledgement of their valuable contribution to the company’s growth. This aspect of RSPs is particularly appealing in Hong Kong’s dynamic business landscape, where the blend of financial incentives and recognition plays a crucial role in employee satisfaction and corporate success.

Advantages of Restricted Shares

Advantages of Restricted Shares

Restricted shares offer several distinct advantages that benefit both the employees and the company.

Employee Retention and Incentive
One of the primary advantages of restricted shares is their role in employee retention and motivation. By providing employees with a stake in the company, they become directly invested in the company’s success. This ownership feeling encourages them to perform at their best and stay with the organisation until the shares vest. In a city like Hong Kong, where the job market is highly competitive, this can be a significant factor in retaining top talent.
Simplicity and Clarity
Compared to other forms of equity compensation, such as stock options, restricted shares are relatively straightforward. They come with a clear vesting schedule and easy-to-understand timelines, making them an attractive option for employees. This simplicity is particularly appealing in Hong Kong’s complex financial landscape, as it provides clarity and reduces confusion for employees who might not be well-versed in equity compensation mechanisms.
Value at Vesting
Another key advantage of restricted shares is their inherent value at the time of vesting. Unlike stock options, which may have little or no value if the company’s stock price has not appreciated since the grant, restricted shares hold intrinsic value even if the stock price remains static. This feature ensures that employees receive a tangible benefit upon vesting, which can be a strong motivational factor.
Restricted shares also offer flexibility to employees in managing their equity compensation. Once vested, employees have the option to either retain their shares, potentially benefiting from future stock price appreciation and dividends or sell them immediately for cash. This flexibility is particularly beneficial in a volatile market like Hong Kong, allowing employees to make decisions that best suit their individual financial situations and goals.

Additionally, RSPs in Hong Kong can complement Employee Stock Option Plans (ESOPs), offering a broader equity compensation portfolio. While ESOPs provide options to purchase stock at a future date, RSPs offer actual shares upon meeting specific criteria. Utilising tailored ESOP services or vendors can streamline the management and integration of both RSPs with ESOPs to ensure that companies can devise a sustainable strategy to balance immediate and long-term employee incentives, achieving long-term success for their businesses.

Legal and Tax Implications

In Hong Kong, the legal and tax implications of restricted shares are governed by the Inland Revenue Ordinance. Both companies and employees must understand the tax implications at the time of grant, vesting, and sale of these shares. Proper compliance with these regulations is crucial to avoid legal complications and ensure the smooth operation of the RSPs. To this end, companies should consider engaging in tax filing and advisory services. Expert guidance in these areas not only ensures compliance but also contributes to the long-term success and stability of the company’s RSP initiatives. Talk to BoardRoom to learn how our services can ensure compliance and the long-term success and stability of RSP initiatives.

Frequently Asked Questions (FAQs)

Do Restricted Share Plans impact share price?

While restricted shares don’t directly affect a company’s share price, they can have an indirect impact. By incentivising employee performance and retention, they can contribute to the company’s overall performance, which in turn may influence investor perception and share value.

What happens to Restricted Shares if an employee leaves the company?

Typically, if an employee leaves the company before their restricted shares vest, they forfeit these shares. However, the specific outcomes can vary based on the company’s share plan rules and the terms of the employee’s departure.

Do restricted shares affect company ownership?

Yes, restricted shares do affect company ownership. As employees’ shares vest, they gain a stake in the company, potentially affecting the overall ownership structure. This dilution is often seen as an investment in human capital, which can drive future growth.

Contact BoardRoom for more information:

Jason U

Managing Director Asia, Share Registry Services and Employee Plans Services

E: [email protected]

T: +852-2598 5234

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Does your business survival depend on sustainable cost-cutting strategies?

cost-cutting strategies

Does your business survival depend on sustainable cost-cutting strategies?

Which costs to cut to secure your business’ future

Key insights

  • Cost-cuttingdemands strategies that adopt a sustainable approach to operational efficiency and employee wellbeing
  • Efficient management of working capital supports a renewed focus onthe immediate, medium, and long-term impact
  • Smart outsourcing with trusted partners sharpens expertise across critical operations


After experiencing a slowdown in recent years, both the US and European economies have had an impact on the Asian export market, contributing to its export decline in 2023. This is the type of economic downturn that traditionally results in retrenching employees as an immediate cost-cutting measure.

However, the global trend has driven a people-first approach to managing through this unprecedented downturn; every business has customers and stakeholders watching how they respond to market challenges to balance people and profit.

Leaders ready to do things differently can look to sustainable cost-cutting strategies for guiding their companies through change with reduced risk in 2024:

  1. Smart management of working capital
  2. Outsourcing payroll or improving processes
  3. Outsourcing finance, tax,and accounting services
  4. Administering Employee stock option plans
  5. Leverage industry grants and economic stimulus

By prioritising what drives value for your organisation in the long-term, sustainable cost-cutting strategies focus on positioning the company to survive now and thrive through an economic recovery.

01 Smart management of working capital

Cash flow is critical in a crisis, and minimising investment in working capital — what we spend to get the job done and keep the business running — is vital.

In 2023, there has been a shift in focus towards operational efficiencies, and effective working capital management. Growth and development may be temporarily on the back burner, but this is the time to get the business-critical functions of your organisation right. Containing costs to minimise reliance on lenders will position your business to recover strongly as economic conditions bounce back from a slowdown in 2023.

A renewed interest in working capital demands a critical assessment of the entire sales pipeline; inventory levels, distribution points, and product viability are all on the table.

Smart leaders are looking at strategies for cost-cutting, including:

  • Proactive Invoicing — offering customer incentives like early payment discounts
  • Cash Management — paying suppliers when they’re due, not before
  • Inventory — lowering stock thresholds to reduce risk butmaintain agreed customer service levels
  • Reducing overheads by outsourcing backend services

Next steps: Assess your working capital costs and financial forecasts to confirm what you can bring inhouse and which backend services are smarter to outsource.

02 Outsource your payroll or improve your processes

Outsourcing backend services like payroll has a poor reputation as being the inevitable result of retrenchment or a sign of instability. However, payroll processes are crucial to managing through an economic downturn or slowdown. Having a smooth payroll process drives employee satisfaction, increases employee morale and reduces the risks of payroll legislative penalties,

There are two ways to outsource payroll to streamline operations:

  • Completely outsourcing the payroll function and services to an external provider
  • Using a cloud-based SaaS HR management system (“HRMS”) — this freesup HR from administrative tasks by empowering automatic and self-service tasks.

Outsourcing your full payroll function reduces HR management intervention, granting flexibility for other in-house duties such as growing the team and business. It is especially advantageous for global expansion, ensuring lean and effective payroll operations team that is in compliance with local regulations.

As payroll requires numerous tasks relating to the calculation and processing of employee salaries, benefits and deductions, having a cloud-based SaaS HR system further enhances the efficiency of payroll outsourcing. Your payroll tasks can now be executed remotely while your service provider handles the maintenance, technical support, and data backup. Additionally, outsourcing your payroll with a SaaS HR management system can often be more cost-effective compared to employing a dedicated HR professional to handle the same tasks.

Overall, these two approaches can also unlock unexpected benefits and expose the significant opportunity cost of not outsourcing key functions, boosting visibility, streamlining internal processes, and staying compliant across multi-country payroll and tax conditions.

Each model can benefit their corporate objectives while managing costs, cross-border functionality, and the personal data privacy of employees.

Next steps: Find Boardroom’s payroll outsourcing services or SAAS solutions to streamline your payroll management according to your business needs.

03 Outsource backend financial support across accounting and tax planning

In an economic downturn, every organisation focuses on the very core of the business: the what and the why. It’s never been more important to have experts aligning your financial processes and procedures with your organisational goals. One core consideration in cost reduction is to consider outsourcing your accounting and bookkeeping services to ensure the business runs smoothly, while internal staff focuses on business survival and generating revenue.

By choosing a financial services partner equipped to manage your operational and strategic finances and accounting, businesses bring external expertise and new perspectives on long-term accounting and tax planning.

Support for accounting functions may include:

  • Ensuring your bookkeeping and accounting comply with local standards in Hong Kong
  • Providing detailed insight into your business by performing thorough analysis on your P&L (Profit and Loss), EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) ratios
  • Streamlining your operations by sorting accounting reports, consolidating group accounts, and offering payment support facilities for correct fund distribution and administration

Support for tax planning may include:

  • Location planning for tax offset maximisation
  • Streamlining cross-border transactions to simplify complex deals
  • Minimising and deferring payments while staying fully compliant
  • Strategic planning to leverage falling asset values

An additional unexpected benefit of external support across accounting, tax, and financial reporting is the establishment of effective data reporting, analysis, and forecasting. This data helps to inform planning, working capital decisions, and support for your enterprise to apply for eligible economic grants and stimulus packages and ensure the governance is in place to stay compliant with funding conditions.

Next steps: Put all your financial operations on the table for expert review. Focus internal skills on long-term planning and get external support for tax, accounting and reporting.

04 Empower the team with employee stock option plans for talent retention

The business landscape of Hong Kong is highly competitive with intense demand for talented individuals. To thrive in this environment and achieve sustainable growth in a business, attracting and retaining talent have become the key. However, traditional methods of employee compensation may not always be feasible, especially when your cash flow is limited. If you don’t have cash on hand but want to reward and retain employees, consider an Employee Stock Options Plans (“ESOPs”).

As companies like Slack and Atlassian have led the way in remote-first workforces, competition for skilled employees demands a different way of approaching the employee experience. Unlocking benefits of employee equity plans have been increasingly popular in recent years as companies look for a different approach to boost employee engagement and maintain productivity.

Create a purpose-built plan to fit your organisation’s and employee’s needs and create a sense of ownership to keep the best and brightest employed in the long term. Your new stock plan — or updates to your current plan should:

  • Keep liquidity by creating long-term incentives to replace short-term cash bonusesor salary increase expectations
  • Reward high-performance and employees who increase operational efficiency during an economic downturn
  • Use performance metrics relevant to your organisation — look at total shareholder returns (“TSR”), client retention, and return on equity (“ROE”) and adapt goals to conditions
  • Drive growth by incentivising staff towards a common business goal

Next steps: Contact BoardRoom to help you manage your Hong Kong-based or global ESOP and keep the workforce focused on revenue-generating initiatives.

05 Access government and industry grants and economic stimulus

Going through the economic slowdown in 2023, Asian markets have seen a new range of government and industry grants and other economic stimulus packages. These initiatives include the Funding Scheme for Youth Entrepreneurship in the Guangdong-Hong Kong-Macao Greater Bay Area, which provides entrepreneurial support and incubation programmes to young entrepreneurs in Hong Kong, along with capital subsidies. Additionally, the SME Financing Guarantee Scheme enables smaller-sized enterprises to secure financing from lenders to meet their business requirements, while the Information Technology Development Matching Fund Scheme supports travel agents in implementing upgrades within the sector.

If your organisation operates across borders or is open to funding to expand operations, you may be eligible for funding support.

Support from government or industry grants demands stringent corporate governance; you may need a guide to accessing, implementing, and leveraging new opportunities across borders.

Next steps: Get expert help to find Hong Kong support for enterprise and cross-border funding opportunities, apply for funding, and stay compliant across jurisdictions.

How sustainable is your cost-cutting in 2024?

Cost-cutting strategies to manage through an economic slowdown look different today from the Global Financial Crisis or the crash; leaders must balance short-term needs with long-term business survival.

It is no longer enough to rely on reducing headcounts, freezing salaries, and scrambling to maintain productivity to achieve cost-cutting goals. Smart organisations are taking new strategies and approaches to old problems: keeping employees committed with stock options over pay rises, looking for market and industry support, and getting smarter about the benefits of outsourcing.

The right outsourcing partnerships are key; who you choose to support your business can define your organisation and your leadership. Look for providers that support your workforce with administrative and financial expertise that drives business recovery.

Talk to BoardRoom about support for sustainable cost-cutting strategies.

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