End of Year Rewards
End of year rewards and incentives are a great opportunity for a business to recognise personal performance and make a clear statement of acknowledgment to employees, preparing the ground for increased loyalty and performance in the year ahead. The run up to Christmas is often a hectic time for hitting year end deadlines and financial targets, but letting employee incentives slide down the priority list can be deeply counterproductive.
December can bring the expectation of end of year reward and recognition for employees, but during these tough economic times it is understandable that your budgets and attitudes towards incentives may have changed. However, rewards do not have to be jammed in to December or early New Year, but they should be communicated and at least be underway before the festive break. The risk of waiting to implement employee rewards could mean the difference between keeping or losing key members of staff that may be feeling under-appreciated at work. For example, the CIPD Reward Risks 2012 report unearthed how 'retention of talent is a big issue in the finance sector' and should not be ignored.
Non-cash benefits, like equity awards, can be an excellent way of providing reward & recognition for your staff without a large cash layout. Against a background of high income tax and NIC rates, share schemes offer benefits that are potentially subject to capital gains tax only (or, in the case of matured Share Incentive Plan (SIP) awards, no tax at all). Share schemes can be utilised by private companies as well as those with quoted shares. In private companies, employees might realise their gain on a trade sale or flotation. Alternatively, the company can provide share liquidity via using an Employee Benefit Trust (EBT). Also, in tough times the value of quoted shares may be quite conservative; and HMRC is often willing to agree very low values for shares in private companies. In both cases, this can lead to higher benefits for participants in share schemes since they acquire shares at a low price which will hopefully be worth considerably more at a later date.
Share schemes help companies economically, by providing alternatives to traditional cash bonuses. The cash flow cost of implementing an appropriate share option plan is modest, certainly when compared to the cost (real in terms of recruitment and training costs and also the lost opportunity cost in terms of downtime) of having to replace just one key individual. The cash, tax and NI savings are striking advantages of such plans. The approved plans most commonly used are the Enterprise Management Incentive (EMI), and the SIP.
It is essential to ensure that employees buy-in psychologically to your reward offering. The CIPD Reward Risks 2012 report listed 'poor implementation or change to reward strategy' in the top three broad areas of reward risks. Perhaps of greater concern was the emergence of employees not understanding what is 'required of them' and not appreciating 'the value of the total reward offering', both listing in the top five specific areas of reward risks. If staff are unaware or do not fully understand what you have in place, there is no way for it to incentivise them! So, even if you have your arrangements in place, do not overlook employee communications.
Please contact a member of the RM2 team on 020 8949 5522 or visit our employee communications page.