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ESG Diligence: The Key To Sustainable M&A Transactions
AAB / Blog / Incentivising Employees In Hard Times
BLOG13th Nov 2015
Employees are fundamental to the success of any organisation; attracting and retaining key individuals is challenging. More than any process or procedure people create value in business, therefore the creation of motivation and drive in these challenging economic times could prove to be the key to success.
Increasing salaries and making bonus payments are two of the simplest ways to incentivise staff. However, in challenging economic times, with tighter cash flows and budget cuts, this simply is not an option.
At AAB, our ‘Expertise to Entrepreneurs’ team believe that share incentives can provide the solution to securing motivated and loyal staff. Currently the depressed share prices reduce the tax cost of issuing shares now, making it a worthwhile time to consider introducing an employee share incentive. The most popular share schemes our team are implementing are Enterprise Management Incentives and Employee Shareholder Status.
Enterprise Management Incentives (‘EMI’)
EMI remains the most popular employee share reward given the favourable tax treatment for the recipient:
A reduced share value means less Income Tax arises where options require less than market value to be paid for the shares with the issuing corporate normally securing a significant tax deduction where EMI options are exercised.
Employee Shareholder Status (‘ESS’)
This initiative has not, and will not, provide significant value to the masses however, in specific circumstances it can deliver significant worth and motivation to key employees.
ESS offers individuals entering into a new form of employment contract a shareholding in their employer in return for giving up certain employment rights. Employees are obliged to receive employer funded legal advice on ESS before progressing to accept such an offer. There are a number of benefits of ESS over EMI:
The employee shareholder must receive shares in the employing company or a fellow group company. These shares must have a minimum value of £2,000 on receipt, there must be no consideration exchanged for the shares and the shares have no set upper value.
As an example, ESS is a great incentive for a company with significant growth potential wishing to attract or retain a senior candidate essential to delivering the growth. The tax position on realisation of their ESS shares will normally be more efficient than the existing shareholders.
These two share incentives are at the forefront of employee motivation and useful for aligning the employee’s objectives with those of the owners. Given the current reduction in the share price of many companies in the energy industry, we would recommend this to be a perfect time to consider the issue of EMI or ESS options. AAB’s ‘Expertise to Entrepreneurs’ team is happy to share their practical experience of such plans.
For more information contact Derek Gemmell, Partner, derek.gemmell@aab.uk