How a share option scheme helps attract and retain talent

Mar 22, 2022 | Business

Many businesses use something known as a ‘share scheme’ to encourage staff to join the ranks and reap the rewards of future success.

A share scheme allows a third party, which is normally an employee, to have the option to purchase a number of company shares at a future date.

So why would your employees want to do this? How is it a draw? What’s the process? What do you need to know about compliance for the ongoing operation of an EMI scheme?

Before you go running to your solicitor, let’s talk about share schemes a little bit more.


Sharing the company’s success

It’s a two-way street – if you work hard and do well for the company, the business will do well in return. This makes the share scheme a viable option to both encourage your staff to work harder towards a common goal and to see the growth you want from your business.

The exercise price (or the price of each share) is normally fixed when the share option is granted – but if you increase the share price, due to the business doing well, then they’ll make more money.

You also get tax benefits from a share scheme – but this depends on the type of scheme you choose.


What are the main types of share schemes?

An EMI (Enterprise Management Incentives) allows a company to grant options of up to £250,000 for each employee over a three-year time frame.

Using these, employees will be able to purchase shares at certain trigger points in the business’s life cycle over the next three years.

Examples of triggers are the sale of the business, reaching a certain market valuation or certain performance targets being met by said employee.

EMI is only available to businesses that have assets that total less than £30 million and have fewer than 250 members of staff.

Another popular scheme is the SAYE (save as you earn), which allows employees to save tax-free money in order to purchase company shares.

This scheme can work in tandem with other schemes (so EMI for example) and is non-discretionary – i.e. everyone in the business is eligible to use it.

Employees can save up to £500 a month as part of a savings contract, which will last between 3 to 5 years. Then once this time period has ended, employees can purchase shares at a fixed price.

On both EMIs and SAYEs, there is no tax or National Insurance to pay. An EMI will be applicable for Corporation tax, as the setting up of the scheme will be done through the business, but relief is available.

An EMI may also have to pay tax if there is a discount on the market value, and SAYEs will have to pay capital gains tax (CGT) if the shares are later sold – although this can be avoided if the shares are transferred to an ISA within 90 days or a pension immediately after purchase.


How does this help my business attract talent?

Simply, sharing is caring. If you let your employees know that, through hard work, dedication and the success of the business they will reap rewards far greater than a traditional bonus scheme, then the proposition is a very attractive one.

Let them think about the options available to them, and convince them that they’d be a part of something that is mutually beneficial for all involved.

Get in touch today and we’ll discuss how share schemes could help you find even better talent.

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