ACCA Advanced Taxation (ATX) Practice Exam

What are the two primary conditions for a Share Incentive Plan (SIP)?

1. Must be granted to key management only

2. Available to all employees and held for five years

3. Must allow for immediate withdrawal of shares

4. Available only to employees with over one year of service

The correct answer is: Available to all employees and held for five years

The two primary conditions for a Share Incentive Plan (SIP) are indeed that it must be available to all employees and that the shares must be held for a minimum period of five years. This characteristic of SIPs promotes employee involvement and engagement by allowing a broader group of employees to participate in the company's success through share ownership. Having the requirement to hold shares for five years encourages long-term thinking and investment in the company, aligning the interests of employees with those of shareholders. This period also helps to ensure that employees are committed to the company's growth, making it beneficial for both the organization and its workforce. Other options do not align with the primary stipulations of a SIP. For instance, limiting eligibility to key management only disregards the inclusive nature of a SIP aimed at benefiting a wider range of employees. Similarly, allowing for immediate withdrawal of shares contradicts the foundational purpose of fostering long-term shareholding. Finally, while having a tenure requirement could be a feature of some incentive plans, it doesn’t capture the essence of what defines a SIP, which is the inclusivity of all employees regardless of their length of service or position within the company.