Attracting and retaining the right talent in your business will be a critical factor in your long-term growth and success. But in a job market where employees are increasingly smart about their choice of employer, it’s vital to offer the right mix of benefits and incentives. Creating an EMI options scheme is one way to do this.
Emily Waterhouse, Partner at HW Business Law, explains what an enterprise management incentive (EMI) scheme is, and how it can be a flexible tool for motivating your senior staff and creating a unique culture within your business.
What is an EMI options scheme?
An EMI is an enterprise management incentive scheme. These schemes are open to most trading companies and give owners a way to offer their management team and employees options to own shares up to a market value of £250,000 .
EMIs are becoming increasing popular in companies that meet the criteria – two of which are the company must have gross assets of £30M or less and have no more than 250 employees – because of the flexible way they can add incentives for your staff.
The need to incentivise your staff
As an owner manager, it’s important to find the right ways to engage, motivate and incentivise your people – and flexible employee incentives can be vital tools for achieving this.
The employee market is challenging and retaining key staff can be difficult, so businesses are faced with a dilemma when it comes to creating the best incentives.
The benefits of an EMI scheme include:
- Staff feel more included – having shares in the business gets staff more involved in the company, especially for smaller businesses and owner-managed companies where succession and development of management positions is key.
- Retaining staff is easier – share ownership helps to retain people in the business, with employees seeing the company’s performance and growth reflected in their share value – and higher retention helps you to groom high flyers for senior management roles.
- Tax efficient benefits for staff – EMIs provide a tax-efficient incentive for employees, but it’s important to realise that they aren’t just a tax perk. Although EMIs have tax advantages, arguably tax is secondary and the ability to incentivise is the major selling point.
By exploring alternative employee benefits, such as EMIs, you move things away from traditional performance incentives of hitting targets, offering bonuses and going on company ‘jollies’ etc. A properly set up EMI scheme helps your people to feel part of the company and its success, engaging them in your core goals, values and strategy.
Nurturing the right commitment in your people
The millennial generation has different expectations from employers, and the desire for greater responsibility, higher ethical values and flexible benefits will be central to their needs.
By tailoring your EMI scheme to fit the exact needs of your workforce – across all areas of age, race, sexuality and background – you create an effective way to engage your people. And this concept of continuing and sustained engagement is critical.
With an EMI scheme, you can use it to encourage employees to stay with your business – You can stipulate such terms that if the employee leaves they lose their option, or alternatively they may keep their options if they leave for a good reason – so it ties people to the company’s long-term strategy. It’s not a case of putting your team in handcuffs and saying you can’t leave, but entering into an options scheme does show a level of commitment to the company.
Tailoring your EMI options scheme to fit your cultural needs
Owner managers can be very protective about their business – after all, this company is your baby and you want things run properly. Giving away control and voting rights by offering shares to your employees can sound worrying – but if you align your options in the right way with your existing company culture, this needn’t be an issue.
At HW Business Law, we talk to clients about what they want to give and what they want to let go with their EMI schemes, so the balance of control is maintained. Customising the specifics of the options you offer to staff helps to make an EMI work for both your own business strategy AND for the long-term happiness and engagement of your employees.
Options to consider will include:
- Non-voting shares – offering non-voting shares to staff keeps the long-term value of share ownership but means that you, as the owner, don’t lose control. Voting rights are retained by your board and big decisions are made by yourself and the executive team.
- Exit-only shares – with exit-only shares, staff only benefit once the company is sold, or there’s a substantial change in ownership. This keeps employees tied to the long-term success and growth of the company and creating value pre-sale.
- Performance-based shares – performance-based shares are tied to certain performance milestones, providing a suitable drive for your team to attain goals and meet these defined targets.
- Growth-based shares – growth-based shares are a good option, as manager owners have put a lot of blood sweat and tears into starting up the business, and therefore growth shares allow your employees to share only in the growth of the business (and the inherent increase in company value) from the date of grant. If your team put in the sweat and tears to drive the business forward from such date, they’ll also see the direct impact on their share value as you have from the beginning..
The incentives you use must reflect your company’s attitude and culture. If the company culture is bonus-driven then make it performance based. If it’s a growth-driven culture then exit-only shares are better. You need to match the right people in the firm to this culture, and don’t make it an administrative burden – keep it simple but flexible.
The flexible way to offer staff incentives
With an effective EMI options scheme, you can manipulate the scheme so it works for both parties – both for you as the employer and for the employee.
It’s important not to see an incentive scheme as just a carrot to dangle in front of employees. Giving your team feedback on business and financial performance is a big part of keeping them on board. Feedback on how well the company is doing helps to keep the carrot looking attractive and instills confidence in the value of their shares.
There’s a danger of share paperwork being put in a drawer and forgotten about. So, it’s crucial to keep your options relevant and current to the needs of the company and your people. The flexibility of the EMI legislation is core to the attractiveness of these schemes. EMIs are not as rigid as you would think and can be manipulated and customised one step at a time.
How HW Business Law can help
HW Business Law specialises in legal advice for owner-manager businesses.
Setting up an EMI options scheme is a legal matter – if you want to get the best out of it, talk to a lawyer. EMIs are not just a tax relief; it’s more strategic and cultural – the way that you choose to set up and customise your scheme reflects how you want to incentivise your people and the culture you want to nurture.
If you want to attract and retain the best staff, an EMI options scheme has the potential to deliver on this. Smart employees want more choices when it comes to benefits, and an EMI scheme has the flexibility needed to meet this challenge.
Talk to one of our lawyers about exploring the benefits of an EMI options scheme.