The benefits of EMI share option plans and why more companies should take advantage of them

In the current job market, it’s more important than ever for businesses to recruit and retain key, skilled employees – something that can present a challenge. Enterprise Management Incentives (EMI) employee share option plans are an excellent way to offer a more enticing remuneration package and align the interests of management with shareholders. This is even more apparent following the Autumn Budget which saw the scope of companies who can take advantage of this tax-advantaged plan widen dramatically.

Previously EMI plans were effectively limited to start ups and smaller companies but now these can be implemented in companies with up to 500 employees – double the previous cap, and gross assets up to a value of £120 million – a fourfold increase. Reflecting this expansion, the overall limit on the value of EMI options that can be issued also doubled, to £6 million. Businesses may now be in a position to implement EMI plans for the first time so to help with this consideration, we have looked at five of the main motivations behind an EMI plan for businesses and employees.

Recruit

Where a business may find difficulty in offering a competitive cash salary to key roles, EMIs can provide an alternative means of remuneration to attract employees. Businesses with high-growth potential can issue EMI options (an option basically being a contractual right to acquire shares at some future date at a price set at the outset – in other words an equity incentive) alongside a cash salary and other remuneration to reward individuals with options that will increase in value as the business grows and the share value increases. This subsidising effect of EMI options allows businesses to compete for the best talent at earlier stages in development.

Retain

Many share plans are designed so that employees cannot exercise their options for a number of years or until the occurrence of a specific event – such as when key milestones are passed or indeed when the business is sold. This can help encourage employees to stay for what may be considered a pivotal period for a business. The Budget furthered this period by announcing that from 6 April 2026 – with retrospective effect – the maximum exercise period for EMI options will extend from 10 years to 15 years. Additionally, most plans include provisions that if an employee leaves the business – unless for a “good leaver” reason – they will also lose their option. This encourages employees to remain with the business in order to realise the return on the incentive.

Incentivise

In retaining the employees, conditions can also be included to incentivise high performance. This may be a specific share price to encourage growth or including an exit event requirement such as the sale of the business. By making the ability to acquire the shares (so that they can later realise value out of those shares) by exercising the option conditional on a specific performance condition being satisfied, employees are encouraged to work towards securing exactly that.

Align

Linked then with incentivisation, EMIs are an excellent means to align the objectives of individuals with the business. EMIs can encourage employees to consider the long-term prospects of the business and think of the business’ successes as their own. This can aid in ensuring that attention is focused on growing share value and maximising business gains.

EMI plans can also help demonstrate to other shareholders that those working within the business are motivated to maximise their investment as they too will see benefits from good performance.

Reward

The most undeniable benefit of EMIs is as a reward mechanism. They are a means for a business to provide remuneration to employees without requiring the business to have significant cash resources. This is because the main ‘cost’ of EMI options, rather than cash, is typically through the dilution of existing shareholders by the issue of new shares. If an individual joins a business in early stages or in a high growth industry, there is potential for significant financial benefits as a result of the EMI as the business develops or goes through an exit event.

Many employees see it as more important than ever to maximise any tax reliefs available. EMIs allow individuals to reap the benefits of the more favourable Capital Gains Tax (CGT) regime on the exercise of the option rather than Income Tax and National Insurance with further benefits potentially available under Business Asset Disposal Relief (BADR).

If your business is considering EMI share options for the first time or you are looking for more information on how your business can benefit reach out to Shepherd and Wedderburn’s Employee Share Incentives team.

This article was co-authored by Trainee Erin Casey.

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