Engaged employees play a vital role in successful business growth. However finding, motivating and retaining the right people is a struggle for many companies.
Employee share plans, particularly HMRC approved Enterprise Management Incentive (EMI) plans, are a proven way to attract staff and successfully boost employee motivation.
Recent studies show that companies encouraging employee share participation outperform the others by 30%. It is therefore not surprising that there has been an increase in the number of companies adopting employee share schemes. The latest HMRC figures show that the number of companies operating EMI plans has more than tripled since the year 2000.
The popularity of EMI plans is due to their flexibility and tax efficiency, along with the fact that they are well understood by investors and easily communicated to employees.
Unlike a share transfer, there should be no upfront cost on receiving EMI options for employees. When the shares are sold in the future, employees should benefit from lower rate of tax on the growth (10% instead of up to 47% tax if paid as salary). Employers can also claim corporation tax relief.
Some business owners express concern over the thought of giving away value or control. However, this can be addressed through harnessing the flexibility of EMI, making it an attractive choice:
- firstly, current value can be retained. An EMI plan can be structured so that the employees are granted an opportunity to participate in the future growth of the business, meaning existing shareholders retain the current value;
- secondly, control does not need to be relinquished. A new class of non-voting shares can be created for employees, meaning existing shareholders retain power; and
- in addition, EMI plans can be structured so that options can only be exercised on a sale of the company, meaning the employees only ever hold growth value and would have no shareholder rights leading up to the sale.
There are a number of requirements that the company and employees need to meet to qualify for EMI treatment, including limits on the size of the company and its trading activities. In the event that the conditions are not met, there are many other alternative employee share plans on offer.
By exploring share incentives as an alternative to salary, many Northern Irish companies could enjoy positive growth in business, driven internally by a highly motivated workforce. There is nothing more powerful in the marketplace.