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Effective funding & hedging strategies for employee share trusts

Effective funding & hedging strategies for employee share trusts

26 March, 2024
Global Corporate Employee Share Plan Administration

As trustees of employee share trusts (ESTs), the current period often prompts discussions with our clients regarding funding upcoming grants and releases within their share plans. These conversations typically focus on two key areas: hedging strategies for future grant commitments and ensuring sufficient shares are held within the EST to fulfil annual release obligations.

Best practices for effective share trust management

  1. Proactive funding & documentation: A crucial best practice is for companies to consider the future funding of releases at the point of granting awards. This deliberation should be documented upon approval of the grant, specifying when (if not immediately) the company will begin sourcing shares to meet future commitments. While circumstances may necessitate revisiting the decision, clear documentation fosters transparency and facilitates informed decision-making.
  2. Tailored hedging strategies: It's important to acknowledge that a "one-size-fits-all" approach to share hedging doesn't exist. Each company's circumstances are unique. However, encouraging share plan managers and finance directors to actively consider and document the rationale behind their chosen hedging strategy is highly beneficial. This practice fosters better outcomes in terms of managing costs, cash flow, and ensuring share sourcing aligns with minimising share price impact.

Key considerations for employee share trusts

  1. Develop a strategic plan: Having a well-defined plan significantly reduces the risk of unexpected challenges at vesting time. While cost savings are not guaranteed, a plan provides certainty. It enables budgeting for delivery costs and determining a timeline for proper execution, minimising share price impact while effectively managing cash flow within agreed-upon parameters.
  2. Collaborate with your trustees: The EST is a highly versatile tool that can play a significant role in executing any hedging strategy. Open communication with trustees fosters a collaborative approach and leverages their expertise to optimise the chosen solution.

How can Ocorian help?

At Ocorian, we understand the complexities of managing employee share trusts. With over 25 years of experience supporting companies with their hedging strategies, our team can offer valuable insights. 

Contact our corporate services team today to find out more.