Share based incentives are widely used by both Hong Kong listed companies and private companies. Historically, such incentives were largely confined to senior management and board members, including executive and non executive directors. In recent years, however, it has become increasingly common for employers to extend participation across a much broader segment of the workforce. This shift reflects a global move towards the “democratisation of equity”, as companies seek to enhance employee engagement, support retention and better align employee interests with long term corporate performance.

In Hong Kong, the most commonly adopted share based arrangements are restricted share unit (RSU) plans and share option plans. RSUs provide participants with a contingent right to receive shares in the future, typically subject to time based vesting and/or the achievement of specified performance conditions. Share options, by contrast, grant participants the right to acquire shares at a pre determined exercise price during a defined exercise period. As a general matter, options may only be exercised once applicable vesting conditions have been satisfied.

Listed companies are also increasingly implementing share matching plans. Under these arrangements, participants use a portion of their salary or bonus to acquire shares at market value, and the company awards a corresponding number of “matching” shares—often in the form of RSUs or restricted shares—at a specified ratio (for example, two matching awards for each share purchased). Share matching plans are designed to encourage employee share ownership and promote longer term alignment with shareholder interests.

Another structure gaining popularity is the omnibus plan, which permits a company to grant multiple types of awards under a single plan framework. Omnibus plans offer greater flexibility and administrative efficiency, particularly for multinational groups operating across multiple jurisdictions.

Among listed companies, equity settled awards are often preferred because they tend to deliver more predictable value and are widely regarded as effective tools for retention and long term alignment with shareholder interests. Private companies, by contrast, often adopt a combination of share based and cash based incentives. While options and RSUs are commonly used, the absence of a public market for shares requires private companies to carefully address liquidity issues through mechanisms such as exit based vesting, redemption features or internal share buy back programs. As a result, many private companies supplement or replace equity awards with cash settled incentives, such as phantom share or share appreciation rights plans, to achieve similar retention and alignment outcomes.

Companies in Hong Kong, whether private, pre‑IPO or listed, may offer share options provided the plan is approved at the appropriate corporate level and complies with applicable regulatory requirements. Plan rules typically give the board or remuneration committee discretion to determine eligibility, grant size, vesting conditions and other terms.

Hong Kong-listed issuers must comply with Chapter 17 (Chapter 17) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules). In addition to requiring shareholder approval for the adoption of a new share option plan, Chapter 17 sets out the following key guardrails:

(a) grants made under schemes funded with new shares are subject to:
i. a 10% ‘scheme mandate limit’ (refreshable); and
ii. a 1% ‘individual limit’ over any rolling 12‑month period unless separate shareholder approval is obtained; and

(b) pricing restrictions, including a minimum exercise price for options.

Private companies have greater flexibility, with share option plans being primarily governed by the company’s constitutional documents, standard approvals processes at board and shareholder level, and general company‑law principles. Many pre‑IPO companies model their plans on Chapter 17 to ease the transition to listing.

Unlike in Europe, the UK and the US, Hong Kong does not offer a tax‑qualified or tax‑favoured employee share option plans. Gains realised on exercise may be subject to salaries tax where options are granted by virtue of Hong Kong‑based employment.

Companies in Hong Kong may offer a range of share acquisition or share purchase arrangements, including RSU plans, restricted share plans and share matching plans (see response to Question 1 above).

For Hong Kong listed issuers, share based award plans are regulated under Chapter 17 of the Listing Rules and are subject to governance requirements similar to those applicable to share option schemes. Private companies are not bound by Chapter 17 and therefore have significantly greater flexibility in structuring eligibility criteria, vesting and performance conditions, malus and clawback provisions, and funding mechanics.

Awards granted under share acquisition or share purchase plans are generally treated as employment related income and taxed to the extent that the benefit is attributable to Hong Kong employment.

Companies in Hong Kong also use long‑term incentive arrangements on a cash‑settled or equity‑linked basis. ‘Phantom’ or ‘shadow’ share plans grant notional units that mirror share value (and sometimes dividends over the performance or vesting period), paying cash on vesting or settlement. As phantom share plans do not involve the issuance or transfer of shares, they do not engage Chapter 17’s share‑issuance controls and do not dilute share capital, making them attractive for Hong Kong-listed issuers that wish to avoid using share‑scheme mandate headroom.

Companies may also deliver cash‑settled versions of awards or options (paying a cash amount equal to the value that would have been delivered in shares). Cash‑settled awards can be useful for managing dilution and for multinationals navigating cross‑border tax or securities‑law constraints. In regulated sectors such as financial services, deferred cash awards are common to accommodate remuneration and risk‑alignment requirements.

For private companies, there are no statutory limits on eligibility and participation is generally discretionary (subject to plan rules and general company‑law requirements). The board or remuneration committee may select eligible pools of participants, which may include employees, directors (executive and non executive), consultants, service providers, secondees and prospective hires

For listed issuers, Chapter 17 defines ‘eligible participants’ for schemes funded with new shares as: (i) employee participants (directors and employees of the issuer or its subsidiaries); (ii) related entity participants; and (iii) service providers (with specified exclusions). Grants to connected persons are subject to enhanced oversight, for example grants to directors require approval by independent non‑executive directors.

Yes. Both listed and private companies routinely attach performance conditions and vesting schedules to employee incentives, with forfeiture on failure to satisfy conditions or on certain leaver events (such as gross misconduct). These features are generally matters of plan design, subject to board or remuneration committee discretion and the terms of the plan.

Performance targets commonly combine corporate metrics (revenue, profit, EPS, ROE), business‑unit outcomes and individual KPIs, depending on the seniority and responsibility of the individual being incentivised.

For Hong Kong-listed issuers, Chapter 17 requires disclosure of performance targets and clawback mechanisms in scheme documentation, or a clear negative statement if they do not apply. A minimum vesting period of 12 months applies, with limited flexibility to use a shorter period for certain grants to employee participants in narrowly defined circumstances. Beyond that requirement, Hong Kong-listed issuers may design the vesting schedule as they deem appropriate and the plan rules and/or grant documentation will typically specify vesting dates, formulas/milestones, performance gateways and any accelerated vesting (such as in the event of a change‑of‑control or participant death).

For private companies, there are no statutory requirements on performance criteria, vesting schedules and forfeiture.

Forfeiture provisions are standard in Hong Kong incentive plans. Standard forfeiture events include the participant: (i) leaving employment before vesting, (ii) being classified as a “bad leaver” (for example, if as a result of misconduct), (iii) breaching restrictive covenants or non compete obligations, or (iv) failing to satisfy vesting or performance conditions.

Yes. Post‑vesting and post‑employment holding periods are permitted and are tools for retention, behavioural alignment and risk management. Companies may mandate retention of vested shares for a period (often 6–24 months), restrict disposals until the end of employment or retirement, or require the continued holding of shares acquired on an option exercise or vesting of awards.

Holding periods are common among start-ups pre‑IPO companies to encourage loyalty to the business in pivotal high‑growth moments in the corporate lifecycle. Holding periods also promote stability and help retain control of the cap table pre listing, as well as managing the practical issue of the restricted liquidity of unlisted shares. In such cases, holding periods may extent to the next liquidity event, such as an IPO, trade sale, or major financing.

Holding periods are also common among Hong Kong-listed issuers in sectors with stronger governance or regulatory expectations like financial services, insurance and large‑cap constituents with mature ESG frameworks.

Malus and clawback provisions have become increasingly common in Hong Kong. While first adopted in financial services (reflecting Hong Kong Monetary Authority and Securities and Futures Commission expectations), they are now seen across many Hong Kong‑listed issuers and larger private companies as governance norms evolve.

Chapter 17 does not mandate malus or clawback for HKEx-listed issuers, but does require them to disclose any clawback mechanism in scheme documentation—or, crucially, to state clearly that none exists. This disclosure expectation has driven broader adoption of malus and clawback, particularly among banks, authorised institutions, licensed corporations and insurers. This is consistent with the global trend in financial services, where malus and clawback mechanisms are expressly designed to discourage excessive risk taking, prevent misconduct, and support long term sustainable performance.

Outside financial services, malus and clawback provisions are increasingly common, especially among large-cap or blue chip issuers, companies with strong ESG or corporate governance frameworks, and companies with overseas institutional shareholder bases.

Among private companies, use of malus and clawback provisions is more mixed. Pre IPO and growth stage companies increasingly adopt such protections to align with expected listing standard governance frameworks, while smaller private companies may rely on simpler forfeiture provisions rather than full post‑vesting clawback.

Hong Kong does not have a broad social security system. Mandatory contributions are generally limited to the Mandatory Provident Fund (MPF) for Hong Kong employees, and equity based incentives are generally not subject to MPF contributions. The primary consideration is therefore salaries tax.

Under Hong Kong tax law, the key principle is that any gain arising from employment is taxable as employment income to the extent it is attributable to services rendered in Hong Kong.

i) Tax consequences on grant

Share options:

• No salaries tax is generally payable on grant, provided the option is genuinely notional and not readily convertible into cash.
• If an option is in substance already a vested right to cash or shares (e.g., a cash-settled phantom option), the Hong Kong Inland Revenue Department (IRD) may treat it as taxable employment income on grant.

RSUs / share awards:

• If the award constitutes a binding right with no conditions, the IRD may view the taxable benefit as arising on grant.
• In most cases, RSUs or restricted shares are subject to vesting conditions, so no taxable event occurs on grant.

(ii) Tax consequences on vesting

The timing rules differ depending on the plan structure.

Share options:

• Vesting of options is not a taxable event, unless the option is considered a “readily convertible asset” (rare for private companies and most listed issuers).

RSUs / share awards:

• Vesting is typically the taxable point, as the employee obtains an unconditional right to the shares.
• The taxable amount is generally the market value of shares at vesting
  minus any consideration paid by the employee.

(iii) Tax consequences on exercise of options

For share options, the IRD imposes salaries tax on exercise, not at vesting.
The taxable gain is calculated as the market value of shares at exercise minus the exercise price and any amount paid for the grant of the option.

(iv) Tax consequences on acquisition, holding or disposal of shares

Acquisition:

• Where shares are acquired through an employment related award, the taxable benefit generally arises at the earliest unconditional point (vesting for RSUs, exercise for options).

Holding:

• Hong Kong does not impose tax on holding assets.
• There is no wealth tax, capital holding tax, or further employment tax while the employee holds the shares.

Disposal:

• Hong Kong does not have capital gains tax and gains on subsequent disposal of shares are generally not taxable.

(v) Loans offered to participants as part of the incentive plan

A loan offer to participants does not trigger tax. However if the employer provides an interest free or below market loan, the IRD may treat the interest benefit as taxable employment income (though in practice, the IRD seldom challenges commercial employee loan arrangements unless clearly subsidised). If the loan is forgiven, the amount forgiven is generally taxable as employment income.

Please see the response to Question 10 above regarding social security.

(i) On grant

• The grant of a share option, RSU, restricted share or similar award does not trigger tax for the company.
• There is no requirement in Hong Kong to withhold salaries tax on equity awards, whether on grant or at later taxable points (unlike the US or UK).

(ii) On vesting

• No corporate tax liability arises at vesting and no withholding obligation arises.
• If the employer funds an award with shares it purchases on-market, a deduction may be available when actual cash is spent.

(iii) On exercise of options

• Even though employees may be taxed on exercise, the employer does not incur a tax charge.
• The employer must, however, report the employee’s taxable gain for the relevant year.
• As with vesting, no deduction is allowed unless the employer incurs a real cash cost.

(iv) On the acquisition, holding or disposal of underlying shares or securities

Acquisition of shares for the plan

• If the employer buys shares on market to satisfy equity awards, the cash cost may be deductible if it is clearly incurred in providing employment remuneration. The IRD typically allows a deduction only where the employing entity incurs the cost directly.

Holding shares

• No tax implications for the employer while holding shares.

Disposal of shares

• Hong Kong has no capital gains tax.

(v) Loans offered to participants

From an employer’s perspective in Hong Kong, the provision of a loan to employees under a share incentive plan is largely tax neutral. Advancing the loan principal does not give rise to a tax deduction and an interest free or subsidised loan similarly does not create a deductible cost. Any interest charged to employees is taxable as ordinary business income, while interest paid to a third party lender to fund the loans may be deductible if incurred in the course of the employer’s business. If a loan is not repaid or is forgiven, the employer is generally not entitled to a bad debt deduction or a deduction for the forgiven amount. Overall, the loan itself does not create significant tax exposure for the employer beyond the taxation of any interest received and the obligation to report any employee side taxable benefits arising from the loan arrangement.

Hong Kong does not impose a standalone registration or approval regime for employee share plans. However, Hong Kong-listed issuers have securities regulatory disclosure obligations.

Hong Kong-listed companies operating share option schemes or share award schemes must comply with Chapter 17. Key reporting requirements include:

Announcements:
Issuers must publish announcements for:

• the adoption of a new share scheme;
• grants to directors, chief executives or substantial shareholders;
• grants exceeding specified thresholds; and
• any refreshment of the scheme mandate limit.

Annual report disclosure:
Annual reports must contain:

• details of all share awards/option grants during the year;
• the scheme mandate limit and utilisation;
• particulars of grants to connected persons;
• movements in outstanding options/awards.

Circulars:
Shareholder approval and a circular are required for:

• adoption of a new scheme;
• refreshment of the scheme mandate limit;
• individual grants exceeding the 1% individual limit; and
• material amendments to scheme terms.

Further, if an incentive plan involves directors, chief executives or substantial shareholders of a listed issuer, the disclosure of interests regime may be triggered. For example a director acquiring shares upon vesting or exercise must file a disclosure of interest notice within the prescribed timeframe. Changes in the percentage of underlying shares held through employee share trusts may also trigger disclosure of interest filings.

Equity awards:

As a starting point, Hong Kong law does not grant employees an automatic right to compensation for the loss of equity awards when their employment terminates.

Whether a participant has any entitlement to an unvested or unexercised award following the termination of employment generally depends on the terms of the plan rules and any award agreement, as well as the terms of the employment contract.

Courts in Hong Kong treat incentive awards as contractual benefits, meaning the legal analysis generally turns on what is set out in the governing documents and not statutory rights.

In most Hong Kong incentive plans:

• unvested awards lapse automatically on termination of employment; and
• vested but unexercised options may lapse shortly after termination (e.g., 30–90 days).

Where the plan expressly provides for lapse of an equity award, Hong Kong courts generally uphold the contractual terms, even if the employee views the outcome as harsh or unfair. In particular, under Chapter 17, Hong Kong-listed issuers must include clear termination and lapse provisions in the plan documents. This further strengthens the enforceability of the lapse provisions.

While Hong Kong law itself does not require different treatment based on the reason for termination (e.g., resignation, redundancy, dismissal, misconduct), but the plan rules or grant documents will often set out different treatment of awards based on different termination grounds.

An employee may claim damages for loss of equity awards, but only in narrow circumstances such as where the employer unlawfully terminates the employment contract and the loss of awards is shown to be a direct and foreseeable consequence of that breach.

Cash awards:

Under Hong Kong law, cash awards that constitute an end of year payment are treated differently from equity awards on termination of employment. Unlike share options or share awards — which typically lapse in accordance with plan rules — cash awards may give rise to an enforceable entitlement if they are contractual and earned prior to termination. The employer may be required to pay it (or a pro rated amount), even if payment is scheduled after termination.

The reason for termination is often significant for cash incentive awards. Where an employee is made redundant or dismissed without cause, a cash award may still be payable if it has been earned or accrued. Conversely, resignation or dismissal for cause may result in forfeiture. Importantly, in cases of wrongful dismissal, an employer may be liable to compensate the employee for the loss of a cash incentive that would otherwise have been payable, even if the plan includes employment on payment date conditions. As a result, cash incentive arrangements generally carry greater termination risk for employers than equity based awards.

Yes. The operation of an incentive plan in Hong Kong is subject to the Personal Data (Privacy) Ordinance (PDPO). Incentive plans routinely involve the collection, use, transfer and retention of personal data relating to participants (such as identity details, remuneration information, performance data, shareholdings and tax information), all of which must be handled in accordance with the PDPO and the Privacy Commissioner for Personal Data’s guidance.

For Hong Kong–listed issuers, the operation of incentive plans is subject to a detailed corporate governance framework under the Listing Rules, in particular Chapter 17, together with the Corporate Governance Code. These require shareholder approval for the adoption of new schemes and certain grants or amendments, impose mandate and pricing controls to protect against dilution and abuse, and place responsibility on the board (often through the remuneration committee) to ensure that awards align with the company’s remuneration policy and long term strategy. Listed issuers are also subject to extensive disclosure obligations and enhanced controls for grants to directors, chief executives and other connected persons.

Private companies are not subject to these prescriptive requirements but remain governed by general corporate governance principles. Incentive plans must be approved in accordance with the company’s constitutional documents, and directors must exercise their fiduciary duties in good faith, for proper purposes and in the best interests of the company when determining eligibility and award terms. In practice, many pre IPO companies voluntarily structure and administer their incentive plans in line with Chapter 17 standards to promote good governance and facilitate a smoother transition to listing.

In Hong Kong, the operation of incentive plans may engage the prospectus regime under the Companies (Winding Up and Miscellaneous Provisions) Ordinance and the securities law framework under the Securities and Futures Ordinance. As a general principle, an offer of shares or securities to employees could constitute an “offer to the public” unless a statutory exemption applies. In practice, most employee incentive plans rely on exemptions available for offers made to employees (and their dependents) in connection with their employment and not to the public at large. To preserve these exemptions, participation is typically limited to employees, directors and consultants and participants are provided with plan documentation rather than a full prospectus.

For Hong Kong listed issuers, incentive plans are also governed by the Listing Rules, in particular Chapter 17, which effectively displaces the need for a prospectus by requiring shareholder approval, prescribed scheme terms, and detailed disclosure and announcement obligations in relation to share option and share award plans. Offers made under a compliant Chapter 17 plan are generally not treated as public offers requiring a prospectus.

Where plans have a cross border element or involve overseas parent companies, Hong Kong securities considerations must be assessed alongside the applicable foreign regimes.

While there is no standalone regulatory regime that applies specifically to incentive plans in Hong Kong, sector specific regulatory requirements may apply depending on the employer’s industry. In particular, incentive arrangements operated by regulated financial institutions, such as banks, licensed corporations, asset managers and insurers, may be subject to remuneration, governance and risk management guidelines issued by the Hong Kong Monetary Authority, the Securities and Futures Commission or the Insurance Authority. These regimes may impose requirements relating to deferral, performance adjustment, malus and clawback, proportionality, and board or remuneration committee oversight, especially for senior management, material risk takers or staff engaged in regulated activities. Accordingly, while conventional employee incentive plans generally do not require regulatory approval, companies in regulated sectors must ensure that their incentive structures are aligned with applicable sector specific remuneration and conduct standards.

There are generally no applicable foreign exchange control restrictions in Hong Kong.

The formal process for granting awards under an incentive plan typically involves the following steps:

(a) Plan adoption: The company’s board of directors and, in the case of listed companies, the shareholders, usually need to approve the incentive plan. For private companies, there are generally no restrictions on the terms of an incentive plan, unless their articles of association state otherwise.

Further, the company may need to complete registration and/or regulatory filings in other jurisdictions in which participants are based, if triggered.

(b) Grant letter / award agreement: Participants are usually provided with the governing plan and a grant letter or an award agreement detailing the number of shares granted and the relevant terms and conditions.

(c) Acceptance from employees: It is highly recommended to obtain written consent from employees to acknowledge and accept the terms and conditions of the incentive plan and transfer of personal data, especially for international plans, to comply with the PDPO (see response to Question 13 above).

(d) Trustee engagement (if applicable): Employers often choose to set up a trust to acquire shares on-market (e.g. in the case of Hong Kong-listed issuers) and/or to hold the shares in reserve until the vesting and/or the exercise of equity awards.

Yes, an overseas corporation can operate an incentive plan in Hong Kong, subject to compliance with securities laws in Hong Kong (see response to Question 15 above).

Yes, an overseas employee can participate in an incentive plan operated by a Hong Kong company, subject to compliance with the applicable laws of the overseas jurisdiction (including, without limitation, the applicable securities offering laws in that overseas jurisdiction).

There are usually also local tax implications for the employee in their country of residence.

The taxation of share options and awards for an internationally mobile employee in Hong Kong depends on whether the income is considered to be derived from or arising in Hong Kong. If yes, see response to Questions 9 and 10 above on the tax consequences for participants in respect of share options and share awards.

Note that there is no tax imposed on investment income or capital gains (i.e. any gains arising from the holding, sale or disposal of shares) in Hong Kong.

If share options or awards are granted to individuals outside of Hong Kong, tax advice should be obtained in the relevant jurisdiction.

Similar to share-based incentives, the taxation of cash-based incentives for an internationally mobile employee depends on whether the income is derived from or arises in Hong Kong. If the incentive is deemed to be Hong Kong-sourced income, it will be subject to Hong Kong salaries tax.

In recent years, a major trend in the employee incentives landscape has been the democratisation of equity. This shift has seen companies broadening the pool of employees eligible for equity incentives, moving beyond senior management to include wider segments of their global workforce. The revival of all-employee share plans is evident across public and private companies, including private equity portfolio companies that have more typically restricted equity participation to the most senior individuals.

Structuring global equity plans demands careful navigation of complex and often conflicting legal and tax frameworks. The challenge only grows with the number of jurisdictions and employees involved, pushing up costs for compliance and amplifying the risk of regulatory or participant challenge if missteps occur. Additionally, a larger pool of participants means more management complexity, and a higher risk of claims around leaver provisions.

There are currently no official proposals for reform that will affect the operation of incentive plans in Hong Kong.