Share Option Schemes

Building a business involves dealing with many situations, one of the major issues is the recruitment and retention of key staff that will help you build and develop your business to what will ultimately be a saleable asset. One of the key factors that a prospective purchaser will look for when deciding whether to buy a business, will be the strength of the management team that will remain after the major shareholder(s) exit the business.

An employee share scheme is one way to give key employees a stake in your business and help improve its performance. As employees normally have to remain with the business to get this benefit, share schemes encourage loyalty and can help you retain valued staff. They act as an incentive or reward and may also help recruitment. HM Revenue & Customs tax-advantaged (approved) schemes are a tax - and National Insurance - efficient way to offer employees shares in the company.

You might consider setting up an employee share scheme to:

  • Motivate your employees to become more productive
  • Align employees' interests with those of shareholders
  • Recruit or retain key employees
  • Compensate for lower salaries and relieve pressure on cash flow
  • Remunerate employees in a tax-efficient way
  • Increase loyalty and reduce staff turnover
  • Realise owners' investment (ultimately through an MBO)

Employee share schemes can involve giving free shares to employees, granting them options to buy shares at a specified price after a specified period of time, or allowing employees to buy shares, and sometimes matching these with free ones. These share schemes are particularly useful as part of the early stage of succession planning or exit by way of sale, as they lock in key employees which will add value to your business in a sale situation.

To tailor a share scheme to the needs and goals of your business, you can:

  • Make the award of shares or grant of options dependent on reaching certain milestones, e.g. in sales.
  • Structure the scheme so that employees become entitled to shares only if you sell or float the company.
  • Limit the scheme to certain key employees, e.g. those with scarce managerial or technical skills. 
  • Require a certain number of years' service
  • Run a combination of schemes or provide more favourable terms for directors, e.g. an enterprise management incentive scheme for directors and a share incentive plan for other staff.

The Partners of Inspired Business Vision have been involved with a number of share option schemes, and can give practical advice to help you achieve your objectives by using this excellent method of rewarding key employees in your business.

Contact Us now to see how we can help your business with share option scheme advice.

 

 


 


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