Schedule 2 share incentive plan (SIP): General requirements: Cash alternatives
The Schedule 2 SIP must not provide cash to employees as an alternative to shares (paragraph 7(1B)).
So for example, a Schedule 2 SIP cannot offer employees cash bonuses as an alternative to shares. Nor can a plan use a performance measure to calculate a bonus of say £10,000 with employees having a choice of taking £3,600 in shares and £6,400 in cash, or £10,000 in cash.
The Schedule 2 SIP does not affect the ordinary operation of companies’ discretionary cash bonus schemes. It is acceptable for a company to let its employees know that if they do not wish to participate in an award of shares under the plan, the company may consider a discretionary cash payment. But, if the cash award becomes established as an alternative to shares, so that employees can expect cash rather than shares, then the SIP may, not meet the purpose of the plan, which is the provision of shares to employees (see ETASSUM21020).
The Trust Deed, plan rules and share agreements must not contain any reference to bonus arrangements but it is acceptable to do so in employee communications such as booklets and online information, although it must be clear that any bonus arrangements do not form part of the SIP.