SHARE schemes are traditionally designed as a long-term incentive intended to bolster employee retention and reward. Such incentives, however, typically make up a far larger portion of potential executive pay compared with rank-and-file employees — usually on the basis that management must have more skin in the game if their interests are to be properly aligned with shareholders. In the debate on executive pay, it is often forgotten that share prices fall as well as rise and that executives compensated with equity are taking that risk along with shareholders, usually whether they like it or not. The tax system principally encourages and rewards risk-taking with lower tax rates, as is the case for capital gains and dividends. This principle is not reflected in how share incentives are taxed, however. They are treated like any other form of remuneration. This is no more profoundly noted than when executives are required or invited to use their own funds to co-invest with shareholders,...
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