Shares as executive remuneration: are they part of the salary?

The Court reaffirmed the distinction between an expectation of a right and an effectively vested right. The shares allocated do not automatically become part of the employee’s assets at the time of the initial award, but only once the time and service conditions set out in the corporate scheme have been met.

The ruling is particularly relevant for companies that use share options, deferred share awards or share-based schemes, but also similar arrangements such as ‘phantom shares’, as analysed in the judgment. The Court confirmed that these benefits may validly be subject to vesting conditions, depending on the employee’s continued service for specified periods.

In this specific case, the scheme stipulated that the RSUs would vest gradually over four years (25 per cent annually), provided the employee remained in employment. Any outstanding shares would be forfeited if the employment relationship ended earlier.

The Chamber considered it unnecessary to rule on whether RSUs are, in the abstract, of a salary nature, as in this case the entitlement was never vested. In other words: even if certain benefits could form part of remuneration, this only occurs when the contractual conditions for their definitive acquisition are met.

Recommendation: If your company implements compensation schemes based on equity, deferred incentives or share ownership, ensure you have clear documentation, precise policies and adequate communication regarding the conditions for vesting, forfeiture or cancellation of these benefits.