Employee Share Schemes
Here at RM2 we create employee share plans to offer employees a stake in their company, all tailored to meet your specific business objectives. Our process involves defining goals, selecting the right scheme, designing and modelling it, implementing it and ensuring compliance. We also offer ongoing support to ensure the success and compliance of your scheme.
What is an employee share scheme?
Employee share schemes (also known as employee share plans) offer a highly effective way for employees to acquire shares in their company. Share plans are used for a variety of reasons, including to reward employees and as part of succession planning.
Awarding staff shares in a company can develop a real sense of ownership and may ultimately increase loyalty and engagement. Share ownership can help align employees’ interests with those of other shareholders, driving growth and increasing share value.
To find out more about employee share schemes, get in touch to ask us a question or download our employee share scheme factsheets.
22 years' experience supporting companies implement employee share plans.
John Dormer
Share Incentives DirectorDownload free Fact Sheets for more information
How do employee share schemes work?
Exactly how an employee share ownership scheme works for your business will depend on your circumstances and overall goals.
Among other things, you’ll need to think about whether you are going to use shares or options, who should participate in the scheme, and what happens if employees leave.
These are important and often complicated issues to resolve, but you do not need to have all the answers now. We will guide you through these questions, ensuring you find the right answer during the scheme design process.
Employee Share Schemes
Which employee share scheme is right for me?
There are many types of share plans available, and we can help you choose the scheme that is the best fit for your business.
Enterprise Management Incentive
A popular, tax-advantaged discretionary share option scheme aimed at smaller independent companies with fewer than 250 employees. This flexible plan is typically used to help retain and incentivise the key people integral to the future success of the company, but can also be extended to all employees if required.
| Tax advantaged (HMRC recognised)? | Yes |
| Can you choose the participants? | Yes |
| Does the plan have financial limits? | Yes |
| Must the shares be in an independent company (ie top company in a group)? | Yes |
Company Share Option Plan
A popular, tax advantaged discretionary share option plan that is frequently used for companies that don’t qualify for Enterprise Management Incentives, usually because they have exceeded the employee limit, or carry out certain excluded trades. Like EMI, CSOP can be used both for key staff, or extended to all employees in the company.
Tax advantaged (HMRC recognised)? | Yes |
Can you choose the participants? | Yes |
Does the plan have financial limits? | Yes |
Must the shares be in an independent company (ie top company in a group)? | Yes |
Share Incentive Plan
A share plan that must be offered to all employees in the company on a broadly equitable basis. The SIP is very tax efficient, ultimately resulting in a zero tax rate for employees. The plan allows employees to buy shares in their company, including on a “buy one get two free” basis, or be given shares free of tax. SIP is ideal for long term retention as the full tax advantages accrue after shares have been held for 5 years. Commonly used by listed companies but also popular with private companies that wish to foster wider employee share ownership.
Tax advantaged (HMRC recognised)? | Yes |
Can you choose the participants? | No |
Does the plan have financial limits? | Yes |
Must the shares be in an independent company (ie top company in a group)? | Yes |
Save As You Earn (SAYE) or Sharesave
A tax advantaged share option plan that must be offered to all employees. Employees are granted options over shares and enter into a 3 or 5 year savings contract, saving up to £500 per month. At the end of the period they can either exercise the options or keep the savings. Most commonly used by larger listed companies.
Tax advantaged (HMRC recognised)? | Yes |
Can you choose the participants? | No |
Does the plan have financial limits? | Yes |
Must the shares be in an independent company (ie top company in a group)? | Yes |
Growth Share Plan
A bespoke share plan that is commonly used by private companies to reward key or senior staff, with reward limited to growth in the value of the company. A Growth Share Plan is particularly when shares already carry significant value which should be ringfenced for founders, with employee shareholders only benefiting from increased growth beyond a set “hurdle”. A Growth Share Plan will usually (though not always) deliver reward on an exit event, and is intended to provide capital gains tax treatment for participants. Unlike the tax advantaged plans above, it is possible to use a Growth Share Plan in a subsidiary company.
Tax advantaged (HMRC recognised)? | No |
Can you choose the participants? | Yes |
Does the plan have financial limits? | No |
Must the shares be in an independent company (ie top company in a group)? | No |
Deferred Share Purchase Plan
A bespoke share plan that is commonly used by private companies to reward key or senior staff. The plan is helpful if the shares to be awarded are high value and participants cannot pay the full market value at the time of award. Employees acquire shares immediately, but payment for the shares is deferred. The plan should provide capital gains tax treatment for participants, but there is a financial risk as the outstanding payment must be made, even if the share value drops in the future. Hence this plan is only appropriate for senior employees. Unlike the tax advantaged plans above, it is possible to use a Deferred Share Purchase Plan in a subsidiary company.
Tax advantaged (HMRC recognised)? | No |
Can you choose the participants? | Yes |
Does the plan have financial limits? | No |
Must the shares be in an independent company (ie top company in a group)? | No |
Non Tax Advantaged Share Option Plan
A simple and cost effective share option plan that can be made available to some employees, all employees and even contractors. The plan is entirely flexible but does not carry any tax advantages. Not recommended unless a company has already used up all the other more tax advantaged alternatives, or if the company or its employees do not qualify for a tax advantaged plan at all. Unlike the tax advantaged plans above, it is possible to use a Non Tax Advantaged Share Option Plan in a subsidiary company.
Tax advantaged (HMRC recognised)? | No |
Can you choose the participants? | Yes |
Does the plan have financial limits? | No |
Must the shares be in an independent company (ie top company in a group)? | No |
Long Term Incentive Plan
Long Term Incentive Plans can take a variety of forms, including market value options, nil cost options and performance shares. They are more commonly used by listed companies to reward senior executives, with reward based on long term growth of the company. LTIPs are usually subject to specific and stretching performance targets aligned with business growth.
Tax advantaged (HMRC recognised)? | No |
Can you choose the participants? | Yes |
Does the plan have financial limits? | No |
Must the shares be in an independent company (ie top company in a group)? | No |
Employee Benefit Trust & Trustee Services
Employee Benefit Trusts are not share plans themselves but are a type of trust that can hold shares for employees for use in an employee share scheme.
EBTs can be particularly useful for private companies because they can warehouse shares and create an internal marketplace, providing liquidity where shares would not otherwise be easily sold.
Employee share scheme selector
Not sure which share plan is right for your business? Use our four-question share scheme selector for a recommendation that suits your circumstances.
What are the benefits of employee share schemes?
Share schemes are a practical way for companies of all sizes (at whatever point in the business life-cycle) to achieve a number of highly valuable benefits.
Attract top talent
Offering an equity stake to key recruits shows that you respect their value and consider them to be a valuable part of the business. This also shows potential employees that they will directly benefit from the hard work they put in to help the company grow.
Boost employee engagement
Today, employee engagement is more important than ever before to the success of an organisation, especially during a company's growth. Engaged employees are more productive, experience greater job satisfaction are more committed to the business. Employee share ownership can significantly boost engagement and gives employees a sense of real ownership in the company’s successes.
Retain star performers
Increase productivity
The most productive companies are driven by an efficient and highly motivated workforce. The challenge facing many employers is how to generate these high levels of productivity in a fair and economically viable manner. Share ownership is one of the most effective ways to incentivise employees, offering a reward for key employees and giving employee shareholders a direct financial stake in the success of the business.
Facilitate succession planning
If you are approaching retirement and are looking for a transition that allows you to relinquish control with a level of assurance, then partial or full employee ownership could be an excellent option for you.
Using share ownership arrangements as a vehicle for succession can help protect your legacy and ensure the company you've created has a promising future. By partially or fully transferring control to the management team and/or employees that helped to build the company, you are able to make sure the core values of the company remain intact.
Reward your team
Rewarding your team with equity not only preserves scarce cash but also ties people to longer term outcomes, such as a sale of the company. It can also be a lot more tax-efficient for the company and the employees.
How to set up an employee share scheme
Choosing and implementing an employee share scheme takes a lot of planning. We are here to guide you through the process, so you can get the right scheme in place for your business and employees.
1. Identify your objectives
The design will flow from your objectives, so the more precise you are the better. Do you want to focus people on an exit? Do you want to reward all employees as a team? Do you have just one key recruit in mind? We will ask you lots of questions to tease out your objectives.
2. Choose a share scheme
3. Design and model your share scheme
4. Implement your employee share scheme
Once the design and modelling are complete, we then agree a share valuation with the HMRC, update your Articles of Association, prepare Board minutes and prepare your scheme documentation.
5. Communicate your share scheme
Communicating information about your share scheme to all the participants is vital its success. As standard, we will provide all clients with easy-to-follow notes explaining your scheme. We can provide further help and guidance on how to effectively promote your scheme if you wish.
6. Compliance and Administration
Once your scheme is implemented it will need to be administered to ensure it remains compliant. We have the most experienced Operations team for share schemes in the UK, so you can be confident that your scheme compliance and administration is in capable hands.
7. Ongoing support
We try to be as proactive as possible when it comes to monitoring your scheme’s performance. We can help improve any equity-based arrangements. You and we are always learning.
Download free Fact Sheets for more information
Frequently Asked Questions
Most employee share incentive plans can be set up within 12 weeks. Generally, the key factor governing progress is the timing of the client’s internal decisions, such as the dates of board meetings. If shareholder approval is required this may extend the timescale, particularly if there are large numbers of shareholders. If you have a particularly tight time frame give us a call to discuss as we may be able to accommodate your requirements.
Again, this will depend on various factors, including the type of scheme and the complexity of the existing share structure and timescales involved. We will agree pricing at the outset so you can effectively budget for the creation of your employee share scheme.
An employee buying shares in a business through an Enterprise Management Incentive (EMI) scheme will not need to pay Income Tax or National Insurance as long as the shares are not being offered for less than their market value (at the time they were initially granted).
You may also qualify for Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) if you sell your shares, allowing you to reduce your Capital Gains Tax liability.
Employees receiving or buying shares through a Share Incentive plan (SIP) will not pay Income Tax or National Insurance if the shares are kept in the plan for more than 5 years
If you choose to have a Company Share Option Plan (CSOP) the shares are not subject to Income Tax or National Insurance if the shares are kept in the plan for 3 years.
Employees who hold options do not have any rights.Once employees have exercised their options and acquired shares, those shares may carry full voting rights, restricted voting rights or no voting rights, depending on how you wish your employee share scheme to operate.
An employee share scheme can be open to all employees or only to certain key employees. It is common to offer share options to people in certain key roles, to high performers and to those who have completed a number of years’ service with the business.
Employees in privately owned companies will normally be required to sell their shares if they leave the business. However, other options can be put in place if you wish to allow employees to retain shares in certain circumstances, for example, when they retire.
Find out more about employee share schemes
Speak to us about employee share schemes today – enquiries@rm2.co.uk
For advice on the many different types of employee share scheme and how each can be tailored to match the needs of your business, please get in touch.
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