Publish Date

Nov 09, 2020

Post-cessation shareholding requirements – addressing some of the practical challenges

A&M Tax Advisor Update

Best practice for executive directors in UK-listed companies is that they are now required to retain a substantial holding in their former employer’s stock when they leave. Over 75% of the FTSE 350 companies who held a policy vote in 2020 adopted post-cessation shareholding policies of some form in accordance with the July 2018 U.K. Corporate Governance Code which requires companies to have a policy on post-cessation shareholdings.

The Investment Association (“IA”) recommends that executive directors hold shares for two years post-employment, at least equal to the minimum in-employment shareholding requirement at the time of departure (or the holding at cessation if lower). The IA expects structures will be implemented to operate and enforce this.  Most of the policies adopted so far have followed the IA guidance, although some Remuneration Committees have chosen to taper the holding down over the two years, only impose a one-year holding period or impose a lower post-cessation shareholding requirement than the in-employment shareholding requirement.

Whilst this demonstrates companies’ compliance with the requirement to adopt a policy, there remain a number of sometimes challenging issues to be considered carefully in order to implement the requirement effectively. It is a sensible approach to consider the in-employment and post-cessation requirement together when determining some of the details; however there will be additional factors to navigate post-cessation. We set out below some of the key questions which companies will need to work through to put the requirement into practice…