14 February 2022

The best ways to incentivise management teams & key employees

With a highly buoyant job market right now and many owners re-evaluating their lives and what’s important to them, now more than ever may be a time to look at how you incentivise and retain your management team and key employees in your business.

 

What are the best incentives for employees?

It’s worth considering that when looking at incentives for management or key employees, each business will be different and so will each individual in the team.

Offering competitive or market leading salaries can be important, but if your business has cashflow pressures then you may need a broader approach to remuneration and reward for your key management team.

 

Shares instead of bonuses

If cash at a premium, then you could consider awarding shares to employees instead of bonuses. This could be an effective way to incentivise key employees longer-term without using cash and could be a first step towards unlocking liquidity through a future management buy-out.

 

Incentivising key employees with an EMI scheme

If cashflow is an issue or you want to tie the employee in longer term, then one of the key ways is to offer shares via an Enterprise Management Incentive (EMI) scheme. Using an EMI scheme may allow you to not only incentivise and retain key management team members but will also help you to buy in to the overall strategy of the business.

With an EMI scheme key employees have an option to buy shares in your company at some point in the future. The price the employee pays for the shares will usually be their value at the time the option was granted. If shares rise, the employee ends up paying a discounted price on current market value. The employee doesn’t have to exercise the option to buy if the share value hasn’t increased.

 

Tax benefits of an EMI scheme

There are some advantageous tax benefits from both an individual and company perspective and these are below:

Individual tax benefits: No income tax or NI contributions unless disqualified. Capital Gains Tax (CGT) payable on the sale of shares (potentially at 10% provided that the shares are sold two years or more after the grant of the option, and the holder has been a director or employee for two years or more prior to the sale).

Company tax benefits: Corporation Tax deduction on option gains and no NI contributions.

 

Other benefits of an EMI scheme

EMI schemes can have multiple benefits including:

  • Drive performance by tying into targets
  • Retain key staff
  • Low upfront cost
  • Build buy-in to long term strategy

 

EMI qualifying criteria

To qualify, your company needs to fit the following criteria:

  • have less than £30m of gross assets
  • be independent (not a subsidiary or controlled by another company)
  • have no more than 250 employees
  • have a permanent establishment in the UK

 

Growth share plan (GSP)

If you don’t qualify for EMI, then there is an alternative which is a Growth Share Plan (GSP). The idea behind growth shares is that employees can acquire a special class of shares that have conditions attached – for example, they will only be worth anything once the company has achieved a certain value, which is usually set at a much higher point than the company’s current value.

 

Why communication is key with share schemes

Some employees may need more explanation and communication to help them to understand the full value of an EMI scheme.

To get the benefits of buy-in and long-term retention you’ll need to share your strategic thinking and make them feel part of that strategic journey, with an ability to input into the future of the company. Otherwise it may well have the opposite effect if people feel less in control of their long-term future.

 

How can Haines Watts help with incentivising management and key employees?

Setting up a scheme in the right way can be complex. We can work with you to map the goals of both the business and you the owner and then work out who the scheme will be offered to and how it will be structured to ensure it works towards your goals.

With the right advice and planning this type of key employee incentive can have a significant impact on your business and give you the peace of mind that your management team or key employees are highly incentivised, motivated, and bought into your vision and the future of the company.

 

if you want help and advice in incentivising and retaining your key people or setting up a share incentive scheme, contact us at our offices in Liverpool, Chester or Wirral.

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