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October 2022 / 10 Min Read

How Post-Vest Holding Periods Impact Non-US Employees with Equity Awards


Post-vest holdings (PVH) on equity awards can carry value for companies and employees; however, different operating countries come with different challenges.


Key Takeaways

  1. There are clear risks and potential tax implications for companies that include a holding period on equity awards depending on the country of operation.
  2. There are many benefits for companies that include holding periods on equity awards to reap, including tax breaks, investor favorability and positive expense savings.
  3. Due diligence is critical for any company weighing the risks and benefits of PVH use to achieve compensation, shareholder and governance goals.

A PVH period on executive equity awards is a powerful corporate governance tool that can help companies improve ties between business leader compensation and shareholder interests. Indeed, PVH periods generate a long list of compelling benefits for companies and employees alike (learn more about those benefits in our linked article).

In the United States (U.S.), PVH period use by S&P 500 companies has grown over the past few years and reached 11.49 percent in 2021, up from 8 percent in 2019.1 This comes as no surprise given the recent lack of significant regulatory action against companies in the U.S. and a growing number of incentives from proxy advisory firms, tax agencies, etc. to add PVH requirements to executive award plans.

Outside of the U.S., every country has its own set of accounting standards and rules, which raises the question, can organizations use PVHs for awards to non-U.S. employees?

The EU published legislation called the Capital Requirements Directive2 (CRD V), which requires certain financial institutions operating in EU member states to defer a portion of variable compensation for material risk takers. This legislation is enforced in the UK as well because it was enacted prior to the UK’s formal separation from the EU in 2020.

The latest CRD V update raised the minimum deferral period required from three years to four, which must be active law in EU member states and the UK 2021 and onward.3 A significant portion of the variable compensation must be deferred during this period. The legislation can apply to firms outside the European Economic Area (EEA) that carry out business from an EEA or UK-based establishment.

The regulatory agendas of the U.S., UK and EU varies when it comes to PVH use, which should incentivize companies not only to consider using them in the U.S. and abroad, but also to weigh the risks and benefits that come with using them. In this article, we look at the implications and benefits that come with PVHs for organizations distributing equity awards to non-U.S. employees. We also examine what organizations should think about as they consider the link between their business leader and employee compensation and shareholder interests through a global lens.

Tax and Accounting Implications of Holding Period Use Outside of the U.S.

Outside of the U.S., different countries follow different accounting standards and rules. Some countries might follow international standards, such as the International Financial Reporting Standard (IFRS) (e.g., European Union) or have their own accounting rules which might be converged with IFRS (e.g., Hong Kong). Given every country follows their own unique tax and accounting rules, it is important for companies to gain an understanding of how the tax and accounting treatment for equity compensation with holding periods differs from one country of operation to the next to ensure compliance with global regulatory requirements and to better understand costs/benefits, administration challenges, etc.

Rules relating to equity compensation with a holding requirement might differ in clarity and vagueness depending on the country, and holding periods might impact the treatment or annual reporting obligations. For example, in the event a country views the taxable moment at settlement or transfer where there is a post-settlement hold, taxes might be due when the shares are transferred to the employee and not at the end of the holding period (upon when shares can be sold to cover the tax obligation). This can create challenges with the way withholding obligations are funded if the plan or award agreements are not carefully drafted.

Organizations should collaborate with their regional and executive leadership teams to assess the potential collective impact of adding holding period provisions to equity awards in different countries of operation.

Tax and Accounting Benefits of Holding Period Use Outside of the U.S.

There are clear risks and potential tax implications for organizations that include a holding period on equity awards depending on the country of operation. However, there can also be many tax and governance benefits to reap by doing so, for example:

1. Employee Taxable Value Reduction: There are some countries that might allow for a reduction in the taxable value of the equity income such as Canada, Hong Kong, Ireland, Luxembourg, Netherlands and Switzerland.

In the Netherlands: If there is at least a one year holding period on the shares, in addition to other conditions, the taxable value will be given a 5.5 percent discount.

2. Capital Gains Tax Reduction: In some countries, employees might be able to reduce their capital gains for tax purposes such as Australia, Colombia, Czech Republic, India and Luxembourg.

In Australia: If the individual holds the shares for at least 12 months prior to sale, only half of the capital gain will be subject to capital gains tax.

3. Qualified Arrangements: It might be possible for the equity plan to be considered a qualified plan if a holding period is incorporated in countries such as Australia, Belgium, France, Israel, Spain and the UK.

In France: For awards authorized after January 1, 2018, awards can be considered as tax-qualified free shares and therefore eligible for a possible 50 percent tax rebate for income and social tax purposes if there is at least a 2-year minimum vesting or holding period for Restricted Stock Units (RSUs) in addition to other conditions that might apply.

4. Potential Fair Value Reduction: A discount for lack of marketability might be appropriate in the fair value if the shares are subject to restrictions on transfer after vesting date.

IFRS 2.B4: If shares are subject to post-vesting restrictions, that factor shall be considered, in the grant-date measurement of fair value to the extent that the restrictions affect the price that a knowledgeable, willing market participant would pay for that share. Post-vesting transfer restrictions might have little, if any, effect on fair value when the shares are traded actively in a deep and liquid market.

Next Steps

It’s critical that organizations consider the differing holding periods rules and limitations in every country of operation so as to build a global playbook that takes advantage of all available tax and accounting benefits globally while also reducing risks and implications based on a unified and cohesive strategy.

Post-Vest Holdings Checklist: Are PVHs on Equity Awards Right For Your Company and Employees?

Proper due diligence is critical for any organization considering whether or not to incorporate holding periods on equity awards and the implementation process in any country. The follow checklist of questions serves to help your company determine if PVHs would help you achieve your compensation, shareholder and governance goals:

  • Is it more beneficial to have a pre-settlement hold or a post-settlement hold?
  • How will this impact the accounting treatment in the countries we grant equity in?
  • Does our plan allow for the type of tax withholding provisions that lend themselves to the type of holding period we are looking to have?
  • Are there any tax implications associated with having a holding period?
  • Will the equity be eligible for any tax qualified treatment?
  • Have we consulted with valuation experts to include a potential discount in our fair value?
  • Will there be any additional securities, foreign exchange or tax compliance requirements (e.g., seeking approval from local authorities)?
  • What additional regulatory reporting obligations will there be?
  • Are our global teams able to handle any additional administrative processes that might occur?
  • What capabilities will our broker or stock plan administrator have to help ease any administrative burdens?
  • What additional language or documentation needs to be prepared?
  • What is the best way to transparently communicate with our employees?

At Aon, we have a dedicated global equity compliance team that helps companies navigate through global due diligence, complex LTI design, expense and discount modelling and equity compensation design.

Please write to us at with any questions you might have.

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