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As companies look for ways to take advantage of opportunities in the global marketplace, they often find unexpected challenges created by the culture, legal regulations and business practices of the markets into which they are expanding. How well a company handles these challenges directly affects its ability to hire key employees and motivate existing employees. One approach that many companies have found to be successful in attracting and retaining employees is offering them additional compensation based on equity in the company. One of the services our Global Equity and Financial Services Group provides is assisting multinational companies in finding solutions to the challenges of offering equity-based compensation programs. White & Case’s strong presence in the leading financial centers, industrialized economies and emerging markets positions us to assist clients with the full array of equity-based compensation issues in every corner of the world.

An Overview
Our lawyers have worked with more than 100 multinational companies in the design, management, implementation and maintenance of equity-based compensation programs. The scope and depth of our experience enable us to help companies avoid common cultural, legal and company-specific problems as they expand outside of the United States.

Our experience has shown us that most companies offer equity-based compensation programs -- including stock options, stock purchase rights, restricted stock or stock appreciation rights -- in non-U.S. jurisdictions without first considering compliance with the laws of those jurisdictions. Attempts at compliance after the fact are usually frustrating and costly. In addition, a company may find that it has not given itself sufficient flexibility in its administrative practices or programs designed to make grants to non-U.S. employees without significant and costly modifications.

Implementation of equity-based compensation programs abroad can be complex and filled with obstacles. The greatest obstacles come in the form of cultural, tax and legal issues that often vary greatly from country to country. Failure to identify these issues can result in employee dissatisfaction, negative publicity to the company, costly fines, unnecessary tax liabilities, administrative costs and, in some cases, criminal penalties. Because of these potential problems, we have found the key to successfully implementing a global equity compensation program is to assess the cultural, tax and legal landscape in each country before offering the program benefits to the local employees.

Some of the services we provide include:

Project Management. The prospect of introducing equity-based compensation programs to employees around the world can be daunting. At White & Case LLP, we are able to manage the development and implementation of these programs at the parent company and subsidiary level. Our goal is to provide a full-service platform that allows us to alleviate our clients’ concerns about the day-to-day planning and implementation issues associated with these programs.

Cultural Issues. Aside from the legal and regulatory issues that our clients encounter in offering global equity-based compensation programs, the local cultural issues must be considered. With our vast international presence, we are able to provide our clients with guidance on the country-specific cultural nuances that should be considered to successfully structure and communicate the benefits of these programs.

Program Design. Global programs must provide the flexibility necessary to give the company the tools it will need to comply with the legal and statutory requirements of multiple countries. We work with our clients to draft comprehensive program documents that address their current needs, but also anticipate future developments in the local law. In addition, we work with our clients in modifying existing U.S. programs to create the flexibility needed to offer these programs abroad.

Employee Communications. An important aspect of any equity-based compensation program is the manner in which the program and its benefits are communicated to the employees. We routinely assist our clients in drafting employee communication materials, which include offer letters, program summaries, agreements, enrollment forms and tax supplements. Relying on our considerable experience, we are able to help our clients communicate unfamiliar concepts in terms that are understandable for the local employees. In addition to drafting these documents, we assist our clients in preparing translations into the local language.

Taxation of Employee. The taxation of equity-based compensation is always a concern of our clients and their employees. We help our clients find solutions to potentially onerous tax obligations by structuring their equity-based compensation programs to take advantage of the local tax regulations and to minimize the employees’ tax liability wherever possible. In many countries, we are able to provide our clients with alternatives, such as adopting subplans, that allow the company and its employees to take advantage of preferential tax treatment.

Social Insurance. We have found that the payment of social insurance taxes on equity-based compensation is a significant factor in whether a company will offer these programs. We advise clients on the potential social insurance obligations that should be considered when offering equity-based compensation programs to employees. The potential impact of these obligations can be significant, but, with planning, we can find solutions to mitigate or eliminate these taxes in many countries.

Taxation of the Local Entity. The taxation of the local entity and the allocation of costs for offering equity-based compensation programs is often a significant internal issue for our clients. We provide our clients with alternatives to: (i) mitigate the tax consequences to the local subsidiary or branch that result from extending equity-based compensation programs to its employees; (ii) arrange for the costs of the programs to be allocated to the appropriate entity; and (iii) mitigate the tax consequences that result from the local subsidiary or branch reimbursing the parent company for the cost of such programs.

Employer Tax Withholding and Reporting. One of the concerns in offering equity-based compensation programs is the scrutiny that can be imposed by the local tax authorities. We work with our clients to determine whether the parent company or the local subsidiary is obligated to withhold income tax on the benefits received by the employees. We also help to establish the administrative procedures necessary to remit the taxes owed to the local agencies.

Securities Restrictions. Because equity-based compensation programs generally involve the offer of company stock to employees, the local securities laws must be considered. We guide our clients through the local country securities compliance requirements, including registering the equity compensation programs, drafting prospectuses and completing any on-going filing requirements.

Exchange Controls. Most equity-based compensation programs involve the transfer of funds across borders. We guide our clients through the intricacies of the local exchange control restrictions that affect the transfer of funds and securities by the parent company, employer and employee. In addition, we obtain the necessary exemptions or approvals from the regulatory authorities to allow the remittance of funds abroad and the receipt of the benefits from the programs.

Employment Law. Because the equity-based compensation programs are provided to employees, local employment laws must be considered. We work with our clients in the drafting and offering of equity-based compensation programs so that the parent company and the employer can mitigate the negative consequences of these laws.

Data Privacy. Data privacy is an important and often confusing area of the law. Because employee information is almost always collected, stored and transferred in the administration of the equity-based compensation programs, the local data privacy laws must be addressed. We work with our clients to structure the administration of these programs so that they comply with the local data privacy laws and, where necessary, obtain the appropriate approvals.

Accounting Issues. Depending on the structure of the equity-based compensation programs, U.S. GAAP and local country accounting treatment may have a negative impact on the company. While we do not advise on accounting issues, we do assist our clients in identifying issues that they should address with their accountants.

E-Commerce. The issue of electronic commerce is becoming more pertinent in the administration of equity-based compensation programs. We also understand that the traditional paper-intensive practice of administering these global programs is financially and administratively burdensome. We work with our clients in structuring the administration of these programs so that they can take advantage of their email and intranet systems to communicate the benefits of the programs to employees and to facilitate the electronic grant acceptance, program enrollment and exercise of the benefits.

Web-Based Administration. In the near future, we will offer our clients access to an Internet database that will provide an on-line vehicle for the management of equity-based compensation programs. The database will include: (a) up-to-date legal analyses of tax, securities, foreign exchange, employment, data privacy, e-commerce and other issues pertinent to the programs; (b) tracking services for past grants and ongoing program implementation; and (c) company-specific program and grant information for access by employees.

In any area of legal practice, the scope of knowledge and capabilities grows incrementally as new issues are encountered. With our Global Equity-Based Compensation Practice, we have found this tenet to be true. Accordingly, the following is a sample of the capabilities that we have developed:

• Establishing offshore trusts in connection with global equity-based compensation programs.
• Implementing non-U.S. global employee stock program equivalents.
• Implementing global repricing and exchange programs for underwater options.
• Implementing global stock appreciation rights programs.
• Implementing global profit-sharing programs.
• Advising non-U.S. companies on offering equity-based compensation programs in the United States.
• Advising companies regarding equity-based programs with respect to the spin-off of divisions.