In Hong Kong, it is common for a company which is listed or planning to be listed to set up share incentive schemes as a means of rewarding and incentivising not just the founders and employees of the company and its subsidiaries but the consultants, business partners and other third parties who contribute to the growth of the company as well.
Share option schemes are the most common type of incentive schemes used in Hong Kong although many companies now have schemes such as restricted share unit schemes, share award schemes and share purchase schemes in addition to their share option schemes.
Unlike share option schemes which involve the issuance of new shares to the option holders, restricted share unit schemes and share award schemes usually involve the transfer of existing issued shares, or the proceeds of sale thereof, to the holders of the units or awards, and will thus have a different impact on the issued capital and financial position of the relevant companies.
Regardless of the type of scheme used, the vesting of options or awards are usually subject to a vesting schedule of three to five years, often coupled with specific performance targets as well.
There is usually little distinction amongst the different types of incentive schemes in their treatment of good leavers, bad leavers and grey leavers. Companies which have more than one type of share incentive scheme usually treat the good leavers, bad leavers and grey leavers in substantially the same way across the schemes.
If a holder of an option or award becomes a leaver (good, bad or grey alike), the unvested portion of her option or award will usually lapse immediately. One exception provided in some schemes is to allow unvested options or awards to vest immediately upon the death of the holder of such options or awards.
A good leaver (typically someone who leaves by reason of retirement, redundancy, death, ill-health, injury or disability affecting her ability to continue in her role, or termination other than for cause) is usually allowed to exercise her vested but unexercised options or receive her vested award shares or proceeds of sale thereof within a short period of time (e.g. within one month after the date of her departure (and such date is usually defined in the scheme rules)).
If the departure is caused by death, ill-health, injury or disability, the good leaver (or in the case of death, her personal representative(s)) will usually have a longer period (e.g. within a period of 12 to 24 months from the date of departure) to exercise the options or receive the award shares or sale proceeds.
A bad leaver (typically someone who is terminated for cause, guilty of serious misconduct, or convicted of any criminal offence involving her integrity or honesty) will usually see her vested but unexercised options, or vested but not-yet-transferred award shares, forfeited. Nevertheless, it is uncommon for shares which have already been issued or transferred to the bad leaver to be clawed back.
A grey leaver (typically someone who resigns) is treated in a less consistent way by companies than a good leaver or a bad leaver. Some companies treat those who resign the same way as they treat bad leavers and forfeit the vested but unexercised option or vested award shares, while other companies do the opposite and allow those who resign to exercise or take their vested options or awards within a short period time.