Establishing the right share incentive scheme for your company

When you have employees that consistently perform to a high standard, it is essential to recognise their efforts. The right reward will mean your staff are likely to stay with you longer and, in most cases, perform even better than before.

But for most SME’s, paying good staff directly in cash is simply unsustainable, and even if you can meet those high monthly salary bills, there is no incentive for the individual not to go elsewhere when the price is right.

However, with a share incentive scheme, you can provide your staff with the motivation they need to continue to perform, and keep them from going elsewhere. Of course, choosing the right scheme is key.

Make Your Staff Feel Valued

The success or failure of any share incentive scheme is based on how the employees themselves perceive it.

No employee is going to feel valued if they are issued with share options that they can never afford. In the same way, being offered shares in a declining company is going to do nothing to improve morale.

Take advice on how best to motivate your staff and what kind of benefit they would value. That way, any steps you make will definitely be in the right direction.

Keep the Company in Mind

The way you structure the scheme is also going to significantly impact your own cash flow and business operations.

For example, an all employee share scheme may be the ideal way to keep your staff motivated; but if the administration costs are beyond your reach, no one will ever see any benefit.

Recently, we spoke to a client looking to reward employees with a share in the future growth of the company, without placing a burden on either the company or the employees at the time of issue. Therefore, an Enterprise Management Incentive (EMI) share option scheme was the ideal solution.

The scheme was set up to provide options to buy shares at specific points in time, under very favourable tax conditions. The employees then felt like they had been given a bonus, without any cash outlay to the company, and, as the options were only able to be exercised upon exiting the company, this also improved staff retention across the floor.

Simplicity is Key

Many companies will engage in a complex employee share scheme that then costs more than it is ever going to be worth.

An employee share scheme can include performance conditions to ensure employees are motivated and incentivised to achieve the company’s goals, but if the scheme is too complicated for employees to understand, they will be disengaged – even if it could be hugely beneficial.

Similarly if the employees themselves don’t value share ownership, ie there is no exit planned and dividends are not paid then however tax efficient a share scheme may be, it may not create the end result that a company is seeking.

Maintain the Focus

When offering shares to your employees, make sure they are rewarded for the goals you want to achieve. When a client from the restaurant sector asked our advice on how to retain a new executive chef, the benefits of the nil paid share were clear.

The company could immediately offer shares to their new employee, with no cash outlay. Within such a structure, the new employee feels rewarded for their efforts straight away, and the company is able to tie the shares into the long term objective of keeping their chef.

Alternatively, if your focus is on growth, then growth shares may be more appropriate. Employees will receive rewards only when the indicators are over and above those that are set within the scheme, keeping everyone’s eyes on the prize.

Such shares can be included in an EMI and provide an outstanding incentive to make the business work. But at the same time, the control of the company remains intact.

Whether you want to set up a new share scheme or revise an existing one, all you need to do is talk to us at BHP. With the right advice, your scheme can work to everyone’s advantage.