10 Top tips for implementing a successful employee share scheme

10 Top tips for implementing a successful employee share scheme

Employee share scheme employees

10 Top tips for implementing a successful employee share scheme

Having implemented hundreds of employee share schemes over the years, as well as operating schemes for their own employees, Postlethwaite Solicitors is one of just a handful of law firms that specialise purely in employee share ownership advice.  In this blog, kindly reproduced with permission from Postlethwaites, we share their top tips for implementing a successful employee share scheme – essential reading for any business owner venturing in to employee ownership schemes and in particular, considering embarking on a new share scheme.

Get some clarity – be clear about your objectives behind the creation of a new employee share scheme: what do you want to achieve?  Rewarding talent?  Attracting or retaining talent? Growth of the company?  Financial reward for your staff? Better employee engagement? Succession planning?  Once you have a clear picture of the ‘whys’ then you can tailor your scheme around them.

Employee share scheme shareholderWho Benefits? – Just your key staff or for all? With performance conditions attached?  Do you foresee it as advantageous to share the ownership across all staff members or a select few?

What structure will suit your business? – employee share schemes can be outright ownership or via a trust?  If you would only like to extend ownership to a select few staff members, then individual employee ownership is probably your best fit, if however, you are looking to include all your employees, then ownership via a trust is probably a more suitable solution.

Who pays? – most employees, even at senior level, will have little or limited funds to buy shares in the company.  There are ways to make this easier: you make the shares free (although beware of tax implications in doing so) or you can use bonuses to fund the purchase or you can grant options (which allows the employee to commit to the purchase of said shares at a fixed price but defer the actual purchase for several years).

What is the purpose? – Decide whether part of the purpose is for you to sell some of your shares.  Is part of the reason for the introduction of a share scheme to allow you to partially sell or is the focus purely on creating employee shareholders?  Your answer to this will determine the shape of your scheme.

What about tax? – Here in the UK, HMRC (the tax authority) offer a number of statutory tax breaks for the purpose of encouraging the take up of employee share schemes and ownership models, this can result in employees paying favourable tax rates, potentially as low as 10%, on share based rewards.  It pays to take the right advice upfront to secure the best tax position for all concerned.

What will work best for your company?  Every business is different, and although there are some share schemes which are common to similar businesses, don’t be tempted into thinking there is a standard ‘one size fits all’ scheme that would suit your particular company.

What about employee engagement? – makes sure all your employees understand the value of the employee share scheme you are proposing, and their place within it.  Give your employees a thorough guide, in plain English, alongside the scheme documents, potentially giving them a presentation on exactly what it is you hope to achieve with your new scheme, and give them the opportunity to ask as many questions as needed.  By keeping your employees fully involved and informed about the financial aspect of the business, they will soon see how they contribute towards the success of the company and that the Company success is their success too.

Looking to the future – Do give some thought to the future, for example, what happens if someone wants to sell their shares?  What if they leave? What about new employees?

Don’t oversell your scheme – it’s all well and good to be enthusiastic, however, to avoid the possibility of having disappointed employees when huge rewards are not forth coming, make sure you keep it realistic, that way any extra is a welcome surprise for all.

Interested in finding out more?  Postlethwaite Solicitors would be delighted to hear from you.  They offer a free no-obligation initial call or meeting with companies exploring employee share ownership, and promise not to bamboozle you with the many acronyms the industry is famous for!

 

Like what you’ve read? Sign up to our employee engagement newsletter to hear more, fresh from the blog.

Engage & Prosper is a UK based privately owned Employee Engagement Consultancy and Social Enterprise, on a mission to help organisations develop a highly productive and fulfilling workplace culture, with their people, through enhanced employee engagement strategies, fabulous and effective internal communications platforms and tailored reward and recognition programmes.

For more information on Engage & Prosper or to discover how we can help you achieve your organisational and people goals please call +44 (0) 330 223 0464 or find out more at www.engageandprosper.com