The new bonus rates for SAYE (Save As You Earn) share option plans will come into effect on 12 September 2010. Click here to see a table of the new rates.
Applications will be allowed on previous bonus rates if the SAYE plan began before 12 September 2010 and the contracts were entered into within 30 days of this date.
Why they are being changed:
SAYE is a plan used by employers to give their employees options to purchase shares in the company at a future date, which can be granted at a discount of up to 20 per cent of the current share price. The employees enter into a 3, 5 or 7 year contract whereby they pay up to £250 a month from their income for a period of 3 or 5 years in return for these options.
At the end of the contract, the employees will receive a bonus rate on the money that they have invested which is calculated with reference to the market swap rate for the length of the contract they entered into. These bonus rates are adjusted automatically to maintain the prescribed percentage margins of the market swap rates. In August 2010, these margins could no longer be met and this triggered the requirement to make a corresponding adjustment in the bonus rates.
What is staying the same:
Bonus rates for 3 year contracts will remain at zero. Employees opting for contracts of this length will have no proceeds from the bonus rates which must be used to purchase shares on the exercise of an option. This means they will need to continue to rely heavily on capital growth to benefit from these plans.