Company and securities laws
Where an ESOP involves grants in Hong Kong, whether it is a plan of a Hong Kong or overseas company, it is still subject to Hong Kong company and securities laws including the Companies (Winding Up and Miscellaneous Provisions) Ordinance and the Securities and Futures Ordinance. If a grant offer is made to (i) a bona fide present or former director, employee, officer or consultant of the company or its group company, (ii) a bona fide dependent of any such person or (iii) the trustee of a trust for such persons, then the offer is exempted from the Hong Kong prospectus requirement. However, the following warning statement should still be included in the ESOP:
“WARNING: The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.”
A Chinese translation of the above warning statement should also be provided.
An ESOP typically excludes the employee’s rights under the plan from the damages that can be awarded to the employee on termination of employment. The employee usually losses its grants if the vesting conditions have not been fulfilled when the employment is terminated by the employer. However, the court may still award damages in respect of loss of ESOP grants in cases such as constructive dismissal or employer’s wrongful termination of employment.
Deduction from wages is strictly regulated in Hong Kong. The Employment Ordinance of Hong Kong permits deductions to be made from wages, upon the employee’s written request, in respect of contributions to be paid by him through the employer for the purpose of any medical benefit scheme, superannuation scheme, retirement scheme or thrift scheme lawfully established for the benefit of the employee or his dependents. An ESOP is clearly not a medical benefit scheme, superannuation scheme or retirement scheme. A “thrift scheme” is generally referred to savings scheme that would not cause risks and offer absolute benefits to the employee or his dependents. An ESOP carries the risk of fluctuating share value or prices and is therefore an investment option for the employees. Thus, it is generally not regarded as a thrift scheme and falls outside any of the categories of deductions permitted under the ordinance. It follows that the employer may have to pay full wages to the employees and makes arrangements to collect their exercise prices when they become payable. Employers who make illegal deductions from the wages of employees are liable to prosecution and, upon conviction, to a fine of HK$100,000 and to imprisonment for one year.