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November 28, 2013 A mechanism to adjust the exercise price of employees stock options plan
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November 28, 2013 A mechanism to adjust the exercise price of employees stock options plan

A private company residing in Israel (the "Company") has provided its employees with stock options from its parent company (the "Granting Company"). The company decided to grant the options under section 102 (b) (2) of the Income Tax Ordinance [New Version] 1961, known as capital gains track.

The option plan included a mechanism for adjusting the option's exercise price in such a manner that the exercise price increases each year by 8%, an incentive aimed to spur the employees to lead the organization towards accelerated growth.

Pursuant to Pre-Ruling No. 5286/13, the Tax Authority approved this adjustment mechanism, subject to several conditions, which include:

  • The percentage change of 8% is fixed and cannot be changed during the option's lifetime.
  • The percentage change of 8% must be uniformly distributed over the entire period, i.e., if an option is exercised in the middle of the option's period, the exercise price will be 4%.
  • The percentage change of 8% will be fixed and will also apply with respect to future grants of options under the same option plan.  

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