This edition of Joseph E. Bachelder’s bulletin examines “longer-term” restricted share plans that, in some cases, have replaced performance share plans in executive pay programs. It focuses on such a replacement made by a UK company in 2018.
Restricted shares have been a form of long-term incentive award since the 1950s. They generally provide vesting over a period of several years. (Three years is typical but some restricted shares vest over longer periods, such as four or five years. Some awards provide for “cliff vesting”—meaning vesting, if it occurs, occurs at the end of the vesting period and not at intervals,such as pro rata, during that period.) Restricted share awards, as referred to in the Bulletin, represent the full value of the share (not just the growth in value). Acceleration of vesting may take place in certain circumstances such as a Change in Control or a “qualifying termination” (e.g., a termination by the employer without Cause or by the employee for Good Reason).