As companies prepare to take their first snapshot on Gender Pay Gap Reporting, companies are now increasingly looking at the detail of what they need to include. This Law-Now looks at how remuneration received through employee share plans should be included in the relevant figures and reports from employers. It should be read together with our other Gender Pay Gap Reporting materials, which can be accessed here.

There is scope under the regulations for employers to provide a narrative or supporting statement when they publish their figures. In this Law-Now, we set out the strict position contained in the relevant regulations. However, as we say at the end of this Law-Now in our Commentary section, we think many companies will want to provide additional figures, footnotes or extra narrative to provide information and explanation anyway, and that this will particularly be the case where employers operate employee share plans. Indeed, we strongly recommend that employers consider doing this.

This Law-Now is just concerned with special rules for employee share plans – cash bonus arrangements have different rules.

Basic principle and background

The basic principle under the regulations is that:

(a) employee share plan awards and gains are only required to be reported if and when there is an event where an income tax charge arises, and

(b) the relevant reportable amount is the amount which is subject to income tax on that event.

Accordingly if there is no income tax charge, either because the relevant event is not taxable, or there is capital gains tax or no tax to pay, or the award lapses before any value is received, the strict position is that nothing is included in the relevant gender pay gap calculations. Virtually all SAYE option exercises, and most SAYE and EMI option gains, will therefore not strictly need to be included.

How and when to value employee share plan awards was reportedly the subject of some debate when drawing up the regulations.

An alternative method considered as the measure of pay for gender pay gap calculation purposes was to use the value of share awards for accounting purposes (which is determined when the awards are granted). That would have some relevance for two reasons. First, it is really only the award that the employer actually controls – in contrast, the value of what people receive when awards vest or shares are sold is more an investment return on the shares concerned as much as a direct reward for work. Secondly, all share awards would also have been included in the year in which the award was made, regardless of whether a tax charge did or did not arise and whether or not shares were received.

However, the decision to tie the gender pay gap reporting system for share awards to the PAYE system at least gives readily available figures without requiring special valuations to be done and in many cases gives a more accurate reflection of what actually goes into people’s pockets in the end. The downside of linking the figures to the PAYE system though is that given that a large number of share awards do not give rise to any income tax charge, a large amount of pay will escape being included in calculations.

This means that share plans are an ideal candidate for inclusion in additional reporting or narrative.

Specific arrangements

SAYE or Sharesave

Contributions to SAYE accounts from pay would be included in ordinary pay because deductions from salary are added back for gender pay reporting purposes.

However, the gains on exercise of SAYE options are not included because those gains are almost invariably free of income tax.

Share Incentive Plan (SIP) Here the analysis depends on what type of award has been made.

Free shares and matching shares – an amount here would only be included as a bonus if and when the shares are released with an income tax charge. So, shares taken out of the SIP more than 5 years after being awarded would not be included at all.

Dividend shares – these are dividends and not remuneration, and so do not need to be included.

Partnership shares – as with SAYE, the amount deducted from pay should be added back, as ordinary pay is reported pre-deductions. When shares are withdrawn from the SIP, partnership shares may give rise to an amount taxed as income. In that case, the amount that would be subject to tax is technically included in full, but that may lead to double counting. For example, if someone saves £50 in a relevant month to buy shares, that £50 would form part of the ordinary pay calculation. However, if someone then withdraws the shares when they are worth £60, should the full £60 be reported as bonus (the strict position), or should just £10 (the gain) be included as bonus? The latter interpretation seems the better one, possibly with the addition of a footnote to the relevant box in the table to say that this is what is being done.

Executive options

The grant of options does not give rise to any reporting requirement. Neither does becoming able to exercise options eg on 3rd anniversary or on performance conditions being achieved. It is just the actual exercise of options that is potentially reportable.

Here, options granted as CSOP or EMI options are excluded if the option exercise meets the relevant conditions so that no income tax is payable, but the taxable amount of “non-approved” options would need to be reported as a bonus in the relevant year in which exercise fell.

LTIPs or other similar share plans These are not option plans in the normal sense of the term, as the shares are free, but they otherwise follow executive option plans in that they are not reportable when the awards are made but only if and when shares are received, when the taxable amount is included as a bonus.

Other issues

Special arrangements apply for expats.

Issues also arise in terms of working out how the value of any share gains through an option exercise etc. is converted into the hourly rate of pay figure for the year in which exercise occurs. A view increasingly finding favour is that, for this purpose, the bonus should be divided by the number of years in which the bonus had to be earned, with hourly pay for the year worked out accordingly.


Each company will have a different take on the results which the strict approach will lead to. Some will be happy that their non-taxable share plan gains are not included; others will be unhappy with this result and will want to include them whether by way of footnote or including them in the actual tables of figures presented.

Each company will also have to be prepared for share price rises (and falls) leading to unusual results in any year, though spread across large employee populations, any share price fluctuation may not always be material in terms of a gap. Companies will have to be prepared that a decision on how to report in one year may not necessarily produce the same result in later years.

Whatever the particular issues for any company on a year by year basis, it should now be preparing to comply with the minimum reporting requirements for employee share plans. It should also look to see what more it can do to present the position as most informatively as they can for their own business, taking into account employee perception and cost among other factors.