While it is not a new issue, there is still quite a lot of uncertainty in how to deal with deferred share unit (DSU) arrangements in a corporate re-organization, says Jeremy Forgie, of Blake, Cassels & Graydon LLP. Speaking on dealing with equity-based incentives in corporate transactions at its ‘Strategies for Executive Compensation,’ a session it jointly sponsored with Mercer, he said depending on the circumstances of the corporate transaction, these arrangements may not be treated the same as stock options and other types of treasury share plans. Regulations for these arrangements impose three general limitations that need to be considered during a re-organization – they cannot provide a benefit for the purpose of reducing the impact of a reduction in the employer’s share price; they must be based on the fair market value of the employer’s shares; and they can only be paid out or redeemed following retirement or loss of office. He advised employers to be careful on the selection of a share price for DSU adjustments and consider using a definition of fair market value following the effective date of the transaction. In the case of a corporate spin-off, employees moving to the new entity can be paid the value of the DSU if there is a termination of employment with the parent company and the new entity and the parent company will no longer be related. Otherwise, the parent company’s DSU remains payable to the employees of the new entity when they retire.
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