Employee share scheme

Employee share scheme

The next few months will be pivotal for many businesses – making sure they retain their key staff will be an important focus at a time when business continuity, high performance and a depth and breadth of corporate knowledge will be crucial for weathering storms and making progress.

In these circumstances, employee share schemes can offer an effective way to incentivise and retain valued team members, with the added bonus of being kind on cashflow in a potentially challenging economic climate.

An employee share scheme is a way for a business to share company ownership with their team, allowing them to also share in the success of the business. Here are some of the benefits and how they could apply to the current trading environment.

Retaining staff

The working world we return to will likely have changed forever. Employers may find they want to reaffirm their commitment to their teams and key staff in an environment where old certainties and structures have been challenged, or employees are concerned over job security. Offering an employee share scheme is a way for companies to show their teams they are valued and send out a positive message about the future of the business.

Attracting staff

As well as retaining team members, a share scheme is similarly beneficial for attracting new staff. Depending on the age and size of your business, your growth plans and what other employers in your sector are offering, a share scheme allows you to offset equity in the business against salary. This can be a useful option for younger, smaller businesses wishing to compete with more established outfits.

Boosting engagement

As we move forward and remote working potentially plays a bigger part in our working lives, employee engagement and reaffirming team unity will be key. The more team members feel part of the company’s mission, the more motivated and happier they are likely to be. This helps creates a positive workplace culture that has obvious benefits across the board for a business.

Driving performance

It doesn’t take a complicated formula to work out that employees who are also shareholders will work harder for their business. Having a share in the equity can encourage a feeling of responsibility for the fortunes of the company and like the individual is empowered to contribute to its success.

Share schemes can also be structured to vest on the attainment of a particular goal or over a set time scale. This can help drive productivity and increase output and create a climate where the motivations and goals of the business are closely aligned with its employees.

Kind on cashflow

In the current trading environment, cashflow may be tight for many businesses. Offering an employee share scheme, as an alternative to a rise in salary or a financial bonus scheme, can be a way of rewarding staff and offering positive incentives without the business needing to dip into their cash reserves.

Offering shares to employees can also be used by a company to raise finance, and is therefore a way of getting cash into the business as well as relieving cashflow pressure.

The employee share schemes available

There are a number of different types of share scheme available, which can be employed depending on the size, aims and objectives of the business. They also offer potential tax advantages if the right structure is in place.

Enterprise Management Incentive schemes (EMIs) are amongst the most popular. You can find more information about EMIs in a blog dedicated to the topic we wrote earlier this year. Other options include unapproved share option schemes, growth shares and ordinary shares.

If your business is considering introducing an employee share scheme and you’d like some advice, please get in touch. Our team brings together corporate legal, HR, tax and employment law specialists who can help advise on a share scheme structure that works best for your business.

Zee Hussain

Director, Corporate Law

Zee is an experienced and trusted solicitor providing commercially focused advice to businesses, directors and senior executives, throughout the UK, on all aspects of employment law.

Learn more about Zee Hussain