ETASSUM24400 - Schedule 2 share incentive plan (SIP): Types of award: Partnership shares: Restriction on number of shares awarded

The rules of a Schedule 2 SIP can allow the company to specify the maximum number of shares that may be included in an award of partnership shares (the ‘award maximum’). If there is such a provision, all partnership share agreements must contain an undertaking by the company to notify the employee of the maximum number and the Schedule 2 SIP must require the notices to be given:

• before the deduction of the partnership money, if there is no accumulation period, or
• before the beginning of the accumulation period, where there is one (paragraph 53).

The Schedule 2 SIP must provide that the number of partnership shares awarded to each participant is reduced proportionately when the award maximum would otherwise be exceeded. This process is usually referred to as ‘scaling back’.

The specimen example of SIP rules include an example of an acceptable scaling back provision, at Rule 6.16. A company may construct their own provisions but these must result in a proportionate reduction and must otherwise conform to the requirements of the SIP Code (in particular, the ‘same terms’ requirement – see ETASSUM21070).

If the rules of a Schedule 2 SIP allow it, scaling back can be applied either:

• when all applications to participate have been received and it is clear that the award maximum would be exceeded, and/or
• when all deductions of partnership share money have been made in relation to a particular award and it is clear that the award maximum would be exceeded.