Could a share scheme secure the recovery and success of business?

25 August 2020

COVID-19 has undoubtedly created challenges for businesses up and down the UK. During these difficult times for business, key employees will be more valuable than ever – to ensure the business survives, and then flourishes in recovery. Employee engagement and retention will be hugely important, at a time where immediate cash incentives will be difficult to justify, even for the most entrenched employees.

Why share schemes should be considered

A share scheme could be an efficient and cost-effective way of incentivising key employees so they remain in the business, and share in its survival, recovery and success.

A few key reasons why a share scheme should be considered:

  • If the value of the company has reduced as a result of recent events, incentivising with equity can enable employees to participate in the future recovery and growth that will be borne out of their hard work and loyalty to the business.
  • Employees are more engaged and are less likely to leave something that they feel they own a part of. Share schemes are proven to increase employee motivation retention and can help avoid recruitment costs.
  • It may be recognised that employees deserve a reward, but draining cash reserves with bonuses and the associated tax costs might not be feasible – shares or share options could be the solution.

There are dozens of options available when looking at incentivising with equity, be it through an immediate shareholding or target related options to acquire shares in the future – most of which can be structuring in a way that doesn’t incur any immediate tax costs.

Enterprise Management Incentives (EMI) schemes

EMIs are some of the most popular routes to providing an equity incentive. EMIs are a tax advantaged share option scheme – meaning employees can be granted options to acquire shares in the future at a price agreed now (usually the current market value of the shares over which options are granted). Being tax advantaged simply means that no income tax is charged on any increase in the value between the current market value of the shares and their value when the options are exercised (and employee receives them) – potentially providing a substantial benefit to the employee.

If you’d like to discuss the routes available to your clients and their business in setting up a share scheme, please don’t hesitate to get in touch.