In recent months, share save schemes have hit the headlines, with employees at Marks & Spencer and Tesco receiving bumper payouts. Elsewhere, Rolls-Royce announced plans to gift each employee shares worth £700.
According to the Social Market Foundation, more than 14,000 companies in the UK, including large brands such as BT and Whitbread, offer an employee share scheme. Such schemes provide employees with the opportunity to benefit from their company’s growth, offering a powerful motivation in addition to salary as part of the total reward. In some cases, it may even tempt talent to consider a package that they wouldn’t usually look on favourably in pursuit of longer-term gain.
Psychologically, options help employees feel more appreciated, resulting in higher retention and greater motivation. Essentially the offer expresses that you value your employees and want them to stay and use their skills to grow the business for mutual gain. An HMRC-commissioned project found that 74% of organisations reported that offering a share scheme helped retain and/or recruit staff and 81% indicated an improvement in employment and/or business outcomes.
Despite their growing prominence, a recent survey of middle-market businesses found that only 18% of companies currently offer employee share plans as a means of attracting or retaining employees.
Aside from the modest set-up costs, share options have few cash costs and can also prove a tax-efficient option for employees. Whether targeted at key employees or implemented across the business, there are a range of options which allow you to protect equity while engaging and rewarding their employees. Below is a quick overview of the main options available, but of course, you should always get expert advice on the best option for your organisation.
The most popular Share Option scheme is the Employee Management Incentive (EMI) scheme, which we have chosen for our own share scheme here at Talent Insight Group.
It is intended for growing businesses with less than 250 employees and is only taxable when the shares are exercised and at a lower 10% rate of Capital Gains Tax. It is only available to workers who spend 75% of their working time at your company, so it may not be suitable for all part-time employees, but it is otherwise fairly flexible
CSOPs are designed for larger organisations. They can be less attractive as shares must be held for a minimum of three years to avoid income tax on gains and are limited to £30,000 of share options.
Share Incentives Plans can consist of a range of elements. Their value is more limited than that of other options, and they must be offered to all employees.
This share savings scheme offers employees a tax-free approach in return for saving and investing over a period of years. To qualify, employees opt-in to save up to £500 per month for a period of 3-5 years. On completing the scheme, they receive a tax-free bonus, and the savings can be used to buy shares at a fixed price.
There may be instances where HMRC-approved schemes don’t fit your organisation's needs, in which case an unapproved scheme offers more flexibility but can be less tax-efficient for employees. Examples include Share Subscription Agreements, Growth Shares (creating a new class of shares, Joint Share Option Plans and Phantom Share Options.
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