What are Share Plans?
Share Plans (also known as Share Schemes) are arrangements which allow employees to acquire shares in the company they work for. These usually take the form of granting employees an option to acquire shares after a certain period of time (normally three-five years), once certain performance conditions have been met or when an exit has taken place (for example, when a startup company is bought over). These plans come in lots of shapes and sizes, can be tailored to the needs of each business, and have several benefits for employers and employees alike.
Aligning interests
A share plan can empower employees by aligning their interests with those of shareholders. This encourages employees to think seriously about the future of the company, as the better the company is doing, the greater their gain will hopefully be when the shares are eventually sold. Therefore, share plans can create a harmonious relationship between the two groups which can increase productivity and performance within the business in the long-term.
Raising engagement
Another major impact of share schemes is giving a voice to employees. Shares provide them with a stake in the success of the company and can foster a sense of belonging within the business. No matter how small the shareholder base, having an ownership interest helps employees to feel valued by their employers and can raise engagement in key decisions and movements. This is sometimes referred to as “skin in the game”, and means employees don’t just have something to gain, but also something to lose.
Financial rewards
Finally, and most obviously, employee share schemes are an excellent way to financially reward employees. If the value of shares increases by the time the employee exercises their option or receives their shares, this can result in a potentially significant reward to them. This also benefits the employer as it reduces the cash outlays within the business.
On top of this, many share schemes have tax benefits for both the employer and employee. For example, some of the most popular plans, such as Enterprise Management Incentives (EMIs) and Company Share Option Plans (CSOPs), have no income tax or NICs payable on exercise if the relevant requirements are met (for EMIs, the exercise price must not be lower than the market value at grant and for CSOPs, the exercise of the option must be on or after the third anniversary of the grant). This is far better than a standard cash bonus, and means that both the employer and employee have less tax to pay.
Overall, share plans can greatly help empower employees by aligning their interests with shareholders, promoting long-term success in the company, raising their engagement by showing they are valued by their employer, and providing financial rewards with major tax benefits.
If you are considering whether an employee share scheme is the right option for your company, please do not hesitate to contact our experienced team of share plan practitioners who can talk you through your options and help create a tailored share scheme for your business.
This article was co-authored by Trainee Taylor Foster.