Allowing employees to own a share of the employer company can have the effect of aligning the interests of the employer and employee. In many industries, such as the financial services sector, it is almost standard practice to include share schemes as part of the remuneration package, making such schemes are vital to attracting new and talented employees. Some, but not all, share schemes even provide tax advantages, further benefiting both the employer and employee.
There are a various types of share schemes, some of which benefit from favourable tax treatment. Broadly speaking, some examples of such schemes are as follows:
- Company Share Option Plans (CSOPs) grants employees the right to acquire share options (which are the right to acquire shares in the future at a fixed price).
- Save As You Earn Schemes (SAYE) allows employees to save a certain amount each month for a specific period and then use the proceeds to buy shares.
- Share Incentive Plans (SIPs) enables employees to acquire shares in the employer company with tax advantages if they are retained over time.
- Enterprise Management Incentive (EMI) share options, which are generally targeted at smaller companies with assets of £30 million or less.
Long term incentive plans (LTIP), under which shares are awarded often subject to performance conditions.
There are various legislative, tax and practical complexities surrounding share schemes. It is advisable to take advice on setting up the scheme (if you are an employer) as well as if you are an employee taking advantage of such schemes.