As an employer, you have the option of paying your staff a bonus in the form of warrants. Not being subject to social security contributions, it is a financially advantageous way for your company to reward good performance.
A warrant has the same economic characteristics as an option. An option is a financial derivative consisting of a transferable contract that grants the holder the right, though not the obligation, to purchase or sell a given amount of a specific asset at a predetermined price (the exercise price) on the contract maturity date. This is how it works:
- As the employer, you buy warrants from the issuer.
- You award these warrants to your employees as a bonus.
- Your employees now have three possibilities:
- to sell their warrants as of the next day for their stockmarket value, bearing in mind the risk of a very limited market (of one night only);
- to keep their warrants and sell them at a later date, but before the expiry date (ten years later);
- or to exercise their warrants and to convert them into shares in the underlying investment fund at the exercise price specified in the contract.
- Financially attractive:
- For your business: warrants you offer to your employees are not subject to social security payments, from either the employer (about 28%) or the employee (13,07%). What's more, the warrants are tax-deductible for your company;
- For the employees: when the warrants are sold, in the event of a capital gain, it will not be subject to any additional taxation. Indeed, the employer pays the withholding tax on the value of the warrants offered (as in the case of a cash bonus) and this tax is in full discharge.
- Efficiency: for the same budget, your employees benefit from a potentially greater sum than if they had been granted a cash bonus and you have the chance to reduce your costs (thanks to the exemption from employer social security payments).
- Risk management:the final warrant parameters are set the night before the allocation to recipients, after the close of the market. When the market opens, recipients have the opportunity to resell their warrants, thus limiting their exposure to the market to one night only.
- Flexibility: you decide the amount you want to give each employee on an individual basis. They then use the warrants how they choose.
- Simplicity: there are several ways to implement, including the possibility to go through the entire procedure on a dedicated website.
Good to know
- Bonuses granted in the form of warrants are regulated by the Law on Stock Options of 1999, which specifies that a bonus of this nature is, subject to certain conditions, exempt from social security payments. The interpretation of these conditions depends on each specific situation. Before adopting this bonus system, therefore, it is very important to analyse your company from a legal, social and tax points of view.
- A numerical example
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