Employee Ownership Scheme?
Discussion
Looking at implementing an employee share ownership scheme to reward (and retain) some key staff. Currently a small business turning over £1m last year but growing quickly.
Before I start the conversation with our accountant (who isn't great, and yes I know I should change!), has anybody done this at a level as small as ours? Percentage wise, we are talking about 0.25 to 1% to start. Not sure if giving an option to buy in the future at a nominal value instead of actually giving the shares over now is a better idea for tax purposes.
Any thoughts appreciated.
Before I start the conversation with our accountant (who isn't great, and yes I know I should change!), has anybody done this at a level as small as ours? Percentage wise, we are talking about 0.25 to 1% to start. Not sure if giving an option to buy in the future at a nominal value instead of actually giving the shares over now is a better idea for tax purposes.
Any thoughts appreciated.
I have a little experience in using such an approach as a reward/incentive/retention device but not within any structured scheme.
The headline is that at the percentages you are looking at (which are fair), it makes zero difference to anything other than you owning less of your business. It's a classic case of bread today - jam tomorrow.
I've found incentive and reward to be the most effective when it is regular and linked to the performance of the individual such as a bonus. Retention comes from being a decent employer, paying decent wages and providing the opportunity to grow in a culture of positivity.
That's just my experience and others may have a different view based on theirs and of course, much also depends on the trajectory of the business. 1% of a business that's likely to be sold for £10m in a couple of year may well keep a few on board!
The headline is that at the percentages you are looking at (which are fair), it makes zero difference to anything other than you owning less of your business. It's a classic case of bread today - jam tomorrow.
I've found incentive and reward to be the most effective when it is regular and linked to the performance of the individual such as a bonus. Retention comes from being a decent employer, paying decent wages and providing the opportunity to grow in a culture of positivity.
That's just my experience and others may have a different view based on theirs and of course, much also depends on the trajectory of the business. 1% of a business that's likely to be sold for £10m in a couple of year may well keep a few on board!
I've sold equity in a business to key staff (director level) and put in a shareholders agreement (good / bad leaver and value attached is key here)
And I've also put in a couple of EMI schemes for key people / high performers.
They both have there pros and cons and will both cost £ - at least 4 figures, possible more depending on how exotic you want to get and who you use.
EMI in my view can be quick and easy for a basic set up and is a lot easier to manage for leavers / new staff that you want to incentivise.
The bottom line is, it's only a retention / incentive mechanism if there is a realistic route to create value in a reasonable amount of time. Otherwise, they'll go elsewhere for an extra £xk salary and leave their shares /options behind.
And I've also put in a couple of EMI schemes for key people / high performers.
They both have there pros and cons and will both cost £ - at least 4 figures, possible more depending on how exotic you want to get and who you use.
EMI in my view can be quick and easy for a basic set up and is a lot easier to manage for leavers / new staff that you want to incentivise.
The bottom line is, it's only a retention / incentive mechanism if there is a realistic route to create value in a reasonable amount of time. Otherwise, they'll go elsewhere for an extra £xk salary and leave their shares /options behind.
Another way of doing this is to establish a new LLP for the team you want to retain, which has a service contract with the main co. This has tax advantages, encourages/incentivises ownership performance, without diluting the main co.
Well done for this. It's the way forward IMO in a world that's increasing difficult to attract and retain talent.
EDIT: There's lots of info here https://employeeownership.co.uk/
Well done for this. It's the way forward IMO in a world that's increasing difficult to attract and retain talent.
EDIT: There's lots of info here https://employeeownership.co.uk/
Edited by Al Gorithum on Friday 29th April 14:40
Thanks to all for their suggestions. The EMI looks like it's good route to go down at this stage so I'm going to pursue this. I'll update this thread with progress in the hope it will help others in a similar situation at a similar size.
The two key points of wanting to do it is to retain/attract staff and reward staff. Granted we could just pay more (we pay pretty well currently) but I like the idea of being able to sell a long term job role with the possibility of long term financial success. Nobody will get rich out of this, we aren't going to be a billion pound business but if we can exit with a healthy sale after 4-7 years then they'll all have done well.
The two key points of wanting to do it is to retain/attract staff and reward staff. Granted we could just pay more (we pay pretty well currently) but I like the idea of being able to sell a long term job role with the possibility of long term financial success. Nobody will get rich out of this, we aren't going to be a billion pound business but if we can exit with a healthy sale after 4-7 years then they'll all have done well.
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