Why cash is no longer key to retaining employees

Cash may no longer be king when it comes to recruiting and retaining your key employees says Genevieve Moore, a tax partner at Blick Rothenberg. 

Statistics released by HM Revenue and Customs this week reveal that offering a share incentive arrangement to your employees is as popular as ever and entrepreneurial thinking employees recognise the value that this may bring to them in the future if they stay with a business and help it grow.

The statistics reveal that during the 2015/16 tax year 10,720 UK companies were operating one of the HMRC tax advantaged share plans for their employees. There are four different plans to choose from, two, which must be made available to all employees, and two, which are discretionary and can be offered to selected employees. The Enterprise Management Incentive (EMI) plan, which is a discretionary plan, remains the most popular, with over 8,600 schemes operating in the 2015/16 tax year, and 23,000 employees granted options during the tax year.

“An EMI plan is aimed at smaller, growing businesses and typically introduced by entrepreneurial, privately owned companies who want to recruit or retain key management,” Genevieve Moore, tax partner at Blick Rothenberg said. “They are an exceptionally tax efficient and inexpensive arrangement to adopt, and prove highly effective to the retention and the recruitment of employees, particularly if the company is in its early stages of operation and not able to offer large cash bonuses to recruit talent.”

“They are most valuable when there is likely to be a company sale or listing in the next two to seven years, as the employees can see the potential of making a large profit in the not too distant future. By granting share options to these key employees, the company is aligning the employees interests with those of the shareholders, all of whom would stand to gain on a successful sale of the business, and are therefore motivated to build shareholder value.”

Although many companies operating EMI plans are in the tech sector, this isn’t always the case, Moore adds. “We’ve assisted business from all kinds of sectors to design and implement an EMI. There are however key qualifying criteria, which must be adhered to for both the company and the employees. Typically we find if a company qualifies for EMI, this will be the “go-to” plan as it offers the greatest tax efficiency for the employees and the company, whilst being extremely flexible. However, the other tax efficient share plans can still be valuable, particularly for larger or listed companies, or companies looking to incentives all their employees with share ownership.”

For some employees, a job offer isn’t worth considering unless it comes with a share option plan, which may be due to how people have benefited substantially from share options in previous employers as they were acquired by the tech giants.

“It is great to see that the number of EMI plans and other tax advantageous share plans in operation remains high, as they are one of the few tax efficient methods available to incentivise staff. Not only are these share plans provided for in tax law, meaning their use is absolutely legal, but the government is actively encouraging employee ownership and participation in the companies they work for.”

Moore believes that in the long run, it’s the companies that see the value in rewarding employees with share options that may retain their loyalty and talent in the long run. “Employees who are entrepreneurial enough to structure part of the remuneration package as share options, rather than a typical cash salary and bonus, may have less to take home today, but could be the next overnight millionaires in the future.”

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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