Strike (share plan price) while the iron is hot!

Posted by Jennifer at 15:17 on 16 May 2016


Putting in place a share plan is not something that should be rushed into – particularly for private company owners giving away part of their business to employees. There are many details that should be considered – shares or options? The percentage of equity to be used? Who should be involved? When should employees receive value?

However, if you have made a decision to give your employees equity – and especially if you’ve told your employees about your plans – it’s important to act quickly. Delaying implementation can often have an unfortunate impact:

  • Share value increases: great for the company but not so good for share schemes. Employees either have to pay more for their shares/options, reducing their eventual gains – or the owner has to give away more equity to provide the employees with the appropriate value.
  • Employees leave: this happens sadly too often, especially if key staff have been made promises of equity that never materialise. If your competitors are ready to make those awards, key team members may be tempted away.
  • Changes in company structure: new shareholders or investors may have their own ideas about share plan design and cause further delays to the original plans. In certain circumstances, changes to the company structure may impact on whether a share plan can be used at all. For example, loss of independence can prevent a company from qualifying for certain schemes such as Enterprise Management Incentives.
  • Changes in legislation: legislation can sometimes change with relatively little warning. For example, recent changes to the Employee Shareholder Status significantly reduced the capital gains tax reliefs for these arrangements. An employee entering into an ESS on or before 16 March 2016 could benefit from a complete exemption from capital gains tax; after that date, the relief is subject to a lifetime limit of £100,000.

If you’re thinking about a share plan for employees, but you aren’t sure what to do next, get in touch. RM2 can help you identify the right plan for you and your business, including helping you work out how much equity to use and the detailed design elements. Once a decision is made our team will work closely with you to implement the plan as quickly and efficiently as possible.