Equity-based compensationTypical forms
What are the prevalent forms of equity compensation awards in your jurisdiction? What is a typical vesting period? Must the arrangements be offered to a broad group of employees, or can the employer select the participants?
Stock options are the prevalent form of equity compensation in Germany. According to No. 4, paragraph 2, section 193 of the AktG, stock options are subject to a four-year vesting period. The criteria of paragraph 1, section 87 of the AktG in relation to the appropriateness of the compensation must also be taken into account.
In principle, the company is free to decide which employees are granted stock option plans.
However, in handing out stock options in a standardised contract format, the company must not violate the statutes of the General Law on Equal Treatment (AGG). According to this, the company must not discriminate between members of one comparison group in handing out stock options as part of the compensation. If executives in general are to receive stock options, this group must be distinguished from other employees according to clear and transparent criteria.
Individually negotiated contracts do not fall under the provisions of the AGG.
Must equity-based compensation be granted by the company’s board of directors (or its committee) or can the authority be delegated to officers or employees of the company? Are there limitations or requirements that apply to delegation?
The issue of stock options restricts the subscription right to which all shareholders are generally entitled pursuant to section 186(1) of the AktG, so that an authorisation resolution is to be adopted by a qualified majority of the annual general meeting (sections 192 and 193(1) of the AktG). This resolution grants the executive board and the supervisory board the authority to issue stock options to members of management and employees. This authority may not be transferred to other employees or executive employees.Tax treatment
Are there forms of equity compensation that are tax-advantageous or disadvantageous to employees or employers?
Under certain conditions, stock options with a value of up to €360 per employee are tax free. Aside from that, there are no tax advantages when it comes to equity compensation.Registration
Does equity-based compensation require registration or notice? Are exemptions, or simplified or expedited procedures available?
In general, equity based compensation does not require registration or notice. For some equity based compensation types, special rules such as prospectus regulation might apply.Withholding tax
Are there tax withholding requirements for equity-based awards?
The employer has to withhold income tax for the equity based award.Inter-company chargeback
Are inter-company chargeback agreements between a non-local parent company and local affiliate common? What issues arise?
Inter-company chargeback agreements are common and are used to avoid unnecessary tax payments.Stock purchase plans
Are employee stock purchase plans prevalent or available? If so, are there any frequently encountered issues with such arrangements?
Employee stock purchase plans are available but are not widely used in Germany. Probably the most frequently encountered issue when establishing stock purchase plans is the co-determination of the works council according to section 87 of the Works Constitution Act (BetrVG). The BetrVG is not applicable if the stock purchase plans do not affect non-executive employees or if issued by a foreign entity without any involvement of the German entity of the employer.