ETASSUM44390 - Schedule 4 Company Share Option Plan (CSOP): Requirements relating to options: Company discretion - leavers

Schedule 4 CSOP schemes will commonly contain discretion in a number of aspects of the scheme:

• selection of participants and number of shares under option;
• whether or not performance conditions attach to the options;
• the extent to which any performance conditions are met;
• whether or not exercise will be allowed in the circumstances prevailing.

As a Schedule 4 CSOP scheme is not an “all–employee” scheme, the selection of participants is for the company to decide so the discretion requires no qualification. Most Schedule 4 CSOP schemes will have provisions to allow for the imposition of performance conditions (ETASSUM44280) reflecting that share options should be seen as a reward for good performance of the employing company/group. The important point to note is that they must be “objective” and included in the terms of the option with any exercise of the option subject to those conditions being satisfied. Difficulties can arise if employment ceases before the end of the performance period meaning that the performance conditions can never be met. It is therefore acceptable for discretion to be applied to allow for exercise in defined circumstances, commonly good leavers and corporate events; however the precise circumstances should be set out in the scheme rules. The rights in respect of “good leavers” must be clearly stated before the application of any discretion. The discretion must be applied fairly and reasonably in determining the extent of any permitted exercise and must improve the rights prevailing without the application of discretion. The discretion may be extended to include other leaving circumstances with the same provisos (see also ETASSUM44380).