10 Ways Professional Services Companies Can Grow Using Employee Share Schemes
This blog looks at engineers, architects, management consultants, accountants, lawyers and advertising professionals.
Professional services companies offer their expertise and experience - a very particular “product”. This makes employees valuable and the value and growth of the business depends on nurturing and retaining this talent.
Typically, the newly qualified/junior staff, carry out the “grunt” work under close supervision but become more experienced individuals who will lead and carry out projects and finally become the top level managers who – as well as overseeing projects – will be responsible for managing staff and, crucially, winning new work.
Does this look familiar?
These organisations will track the traditional partnership route, with equity (shares) offered once an individual can prove herself worthwhile financially. As an old boss used to tell me, the partnership structure is very close to employee ownership because everyone has the opportunity, at least, to become an equity partner in the firm.
The secretaries and support staff may have felt differently… and as a very very junior member of the team, so did I!
But in fact my boss was right. With a little flexing an employee share plan allows this type of business to achieve the equity structure, the retention of high achievers and the corporate growth required, without upsetting the traditional requirement for individuals to gain experience and knowledge over time before they become a “partner” in the firm.
Shares can have different classes with different rights protecting the structure and rewarding those who achieve targets.
A share plan adds the flexibility to include key non-professional and/or junior staff, whose role and loyalty is often underestimated. And, depending on the share plan used, the business can still require buy-in to equity.
So, ten ways to use a share plan in a professional services firm:
- Use Partnership Shares in a Share Incentive Plan (SIP) to ensure that participants make an investment
- Set up an employee benefit trust (whether or not a SIP) to provide a market place in a private company, allowing shares to be bought and sold as new “partners” join or others retire/leave
- Consider an Enterprise Management Incentive (EMI) for maximum flexibility – particularly for senior staff – including the requirement to buy shares at a premium to reflect financial commitment
- Design stretching targets – for teams or individuals –to reward excellent performance
- Mix and match your share plans to meet specific requirements – SIP for all employees, EMI or DSPP to reward more senior staff
- Mirror traditional partnership profits with dividend payments
- Reward long term commitment – e.g. a SIP requires a 5 year commitment before full tax benefits are reaped
- Provide a tax efficient exit route for existing partners/shareholders via a SIP
- Keep control – and keep it simple - by using non-voting shares
- Maximise tax efficiency for the participants and for the company
If you think a share plan might help you meet the challenges in your business, call us on 020 8949 5522 or email us via email@example.com and arrange a free consultation!