Enterprise Management Incentive
Discussion
Out of interest, how does the employee granted the option to buy the shares at price £x ever get to sell them for £y if the company doesn't get sold?
I had a look at the basic parameters of the scheme and could see the initial option had to be at "market rate" (which itself is hard to define for a small private company).
But I couldn't see for example whether the company could buy back the shares in order for the employee to make a material gain?
I had a look at the basic parameters of the scheme and could see the initial option had to be at "market rate" (which itself is hard to define for a small private company).
But I couldn't see for example whether the company could buy back the shares in order for the employee to make a material gain?
EddieSteadyGo said:
Out of interest, how does the employee granted the option to buy the shares at price £x ever get to sell them for £y if the company doesn't get sold?
I had a look at the basic parameters of the scheme and could see the initial option had to be at "market rate" (which itself is hard to define for a small private company).
But I couldn't see for example whether the company could buy back the shares in order for the employee to make a material gain?
There isn't a mechanism for that. I had a look at the basic parameters of the scheme and could see the initial option had to be at "market rate" (which itself is hard to define for a small private company).
But I couldn't see for example whether the company could buy back the shares in order for the employee to make a material gain?
I'd say it works best when the senior team are all on the same page and working towards a sale.
Perhaps an EBT would work if the business owners didn't have an exit in mind in the short to medium term?
desolate said:
There isn't a mechanism for that.
I'd say it works best when the senior team are all on the same page and working towards a sale.
I can see it would be a very good initiative if the owners are focused on selling the business within the 10 year time-frame allowed by the maximum option length. I'd say it works best when the senior team are all on the same page and working towards a sale.
But if selling the company is only a possibility, does it risk becoming a 'white elephant' as it sounds good on paper but in reality would be nigh on impossible for the employee to actually make any gain?
EddieSteadyGo said:
I can see it would be a very good initiative if the owners are focused on selling the business within the 10 year time-frame allowed by the maximum option length.
But if selling the company is only a possibility, does it risk becoming a 'white elephant' as it sounds good on paper but in reality would be nigh on impossible for the employee to actually make any gain?
The employee can share in the profits but I agree if there is no plan to sell then there are better options.But if selling the company is only a possibility, does it risk becoming a 'white elephant' as it sounds good on paper but in reality would be nigh on impossible for the employee to actually make any gain?
It cost a fair amount to set up, requiring valuation and legal advice.
So depending on size of company it may not be worth it. As others have said, it's a bit of an exit-only strategy. Sharper employees will look at it and see it for what it is - a paper exercise which has a high chance of not happening or paying out. So consider whether it will have any effect at all upon their motivation, especially if you have not given off the right signals about having a single minded determination to grow and sell the firm (i.e. if you are treating it as a "lifestyle business" then anyone with two brain cells will see that an EMI is a joke).
For the cost of setting up an EMI I'd consider whether you could instead get some alphabet shares issued.
So depending on size of company it may not be worth it. As others have said, it's a bit of an exit-only strategy. Sharper employees will look at it and see it for what it is - a paper exercise which has a high chance of not happening or paying out. So consider whether it will have any effect at all upon their motivation, especially if you have not given off the right signals about having a single minded determination to grow and sell the firm (i.e. if you are treating it as a "lifestyle business" then anyone with two brain cells will see that an EMI is a joke).
For the cost of setting up an EMI I'd consider whether you could instead get some alphabet shares issued.
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