Employee share incentives can be a valuable tool in motivating, rewarding and retaining employees. They can also be tax efficient and in most cases, tailored to the clients’ goals and objectives. However, navigating the structures and plans available can be challenging and at times perplexing! The table below gives examples of some of the most common issues faced by our clients together with the most likely types of plans available:
| Client issue | Response | Most likely plan types |
|
We need to lock-in/motivate selected employees only |
Discretionary share plans allow the Board to determine who participates, when and how much should be awarded |
EMI, Employee Shareholder Scheme (ESS), Company Share Option Plans (CSOPs), Growth Shares, Nil/Part Paid Share Plans |
|
We’re interested in tax efficient reward for our employees |
While other areas of remuneration planning have been targeted by recent legislation, Government initiatives have enhanced tax breaks on employee share incentives with the tax cost now capable of being often reduced to zero or no more than 10% |
EMI, ESS, Growth Shares, Nil/Part Paid Share Plans |
|
We want to offer all employees a stake in the company |
Direct all employee ownership can be delivered in a number of ways and through tax efficient share plans Indirect ownership offers a different model – allowing employees a say in the running of the business and an opportunity to share in the profits of the business, but no long term direct capital stake |
Share Incentive or SAYE Plans or all employee operation of EMI or Growth Shares. Indirect involvement can be created via an EBT or the Government’s new Employee Ownership Trust structure (which allows CGT free sales into the EOT and income tax free profit extraction of up to £3.6k per employee per annum) |
|
We are unlikely to exit so share incentives are not appropriate |
Internal markets can be created to give a genuine prospect of employees realising value from equity reward. Recent company law changes also mean much greater flexibility in a company buying back employee shares |
Depends upon business drivers and aims for the incentives |
|
We want to offer employees equity but don’t want to dilute current shareholder value |
Share incentives can be structured to avoid any unwanted dilution through a number of mechanisms |
Growth or hurdle shares (either on their own or in conjunction with EMI or ESS) or Joint Share Ownership Plans (JSOPs) all act as anti-dilution mechanisms |
|
We want to incentivise key people to work towards an exit at a target value |
Exit driven share plans can be designed to link reward levels to exit values, whilst also aligning shareholder and employee interests in terms of the timing of the returns |
EMI, ESS, Growth Shares, JSOPs or CSOPs |
|
We don’t want minority shareholders with unwanted rights |
Having minority holders does not have to result in a loss of control – through ensuring appropriate voting, dividend and transfer provisions apply to the minority shares |
Option based schemes and also direct share acquisition plans (i.e. Growth Shares/ ESS) can all be structured to avoid any such complications |