Employee Stock Option Plans under the Egyptian Laws

Written By - Ahmed Raafat, Junior Associate
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Employees Reward and Incentive System

The below provisions exclusively apply to the listed companies in the Egyptian Capital Market.

 

Why do Companies adopt the Reward and Incentive System (“the System”)?

  • Eliminating conflict between companies and employees’ interests by transferring the ownership of a part of the company’s shares to the employee if he succeeds in increasing the company’s profit.
  • Attracting and retaining qualified employees for a certain period.
  • Maintaining experienced employees from counter job offers made by competing companies.
  • Motivating employees to achieve the highest rate of profit by developing the companies business and then increase the value of its shares in the stock exchange.
  • Reducing companies cash payments.

 

 How do Companies provide the Reward Shares?

The company provides the reward shares either by buying its own shares, increasing the capital or by issuing new shares to be allocated to the system.

For example:

  1. Free shares:

The reward may be in the form of granting the employee free shares.

  1. Selling shares:

The reward may be in the form of selling the company’s shares at a reasonable price or through easy payment methods. The employee has the right to obtain a percentage of profit equal to the percentage of the amount paid for the shares.

In case the employee resigns before paying the full price, he will have the choice either to pay the remainder of the price or to recover what he paid calculated on the basis of the shares value at the time of accepting the resignation.

  1. Undertaking to sell:

The employee is given the right to buy shares for a certain price during a specific period of time. However, in case the employee didn’t use such right during the mentioned period, his right to purchase will expire.

 

What are the Procedural Rules of applying the System?

  • Proposal by the Company’s Board of Directors.
  • Approval of the Company’s Extraordinary General Meeting.
  • Notification made to the Financial Regulatory Authority.
  • Contracts concluded with the employees benefiting from the system.

 

Are there any Other General Rules?

Yes, it must be noted that:

  • The implementation of the system at any time doesn’t mean the obligation to be implemented annually. Also, it doesn’t grant the employee the right to request the application of the system from the company in future nor to claim compensation in case of cancellation.
  • For the purpose of protecting the company from hostile sale offers, the shares percentage allocated for the system shall not exceed 10% of the company’s issued shares.
  • The company may at any time terminate the implementation of the system without any liability nor obligation before the employees, according to a decision approved by the Extraordinary General Assembly Meeting.