Employee Share Schemes: Attracting and Retaining Talent in London’s Financial Hub

By digiadmin | 7 November 2023

Employee share schemes are a vital component of compensation packages in London, as they are in other global financial hubs. These schemes, also known as employee share ownership plans or equity-based incentive schemes, serve as powerful tools for companies to entice and retain top talent. They offer employees the unique opportunity to become stakeholders in the very companies they work for. This article explores the various types of share schemes commonly found in London, each with its distinct advantages and tax implications.

  1. Share Option Schemes

Enterprise Management Incentive (EMI) Scheme: EMI schemes are specially tailored for small and medium-sized enterprises (SMEs). They provide employees with options to purchase company shares at a predetermined price in the future, often at a discount. EMI schemes come with tax advantages for both employees and employers.

Company Share Option Plan (CSOP): CSOPs grant employees the option to acquire company shares at a later date. This scheme offers tax benefits and is accessible to a wider range of companies compared to EMI schemes.

  1. Share Purchase Plans

Save As You Earn (SAYE) Scheme: SAYE schemes, also known as savings-related share option schemes, enable employees to save a fixed amount over a defined period. At the end of the savings term, employees can use their savings to purchase company shares at a predetermined price, often lower than the market rate.

 

  1. Share Incentive Plans (SIPs)

SIPs are versatile plans encompassing free shares, partnership shares, and matching shares. Employees may receive free shares or purchase partnership shares using pre-tax income. Employers can also match employees’ contributions with additional shares.

 

  1. Long-Term Incentive Plans (LTIPs)

LTIPs are designed to motivate and retain senior executives over the long haul. These plans typically grant awards of shares or share options to executives based on performance criteria, such as achieving specific financial targets or enhancing shareholder value.

 

  1. Phantom Share Schemes

 

Phantom share schemes, also referred to as cash-settled share schemes, differ from others as they do not involve the actual transfer of shares. Instead, employees receive cash payments based on the growth in the company’s share price over a predefined period.

 

  1. Employee Ownership Trusts (EOTs):

Employee Ownership Trusts present a distinctive ownership structure where a trust holds a company’s shares on behalf of its employees. This arrangement can provide substantial tax advantages and foster a sense of ownership and engagement among employees.

 

Share schemes are extensively utilised by companies in London and the broader UK to motivate their workforce, align their interests with those of the company, and instill a profound sense of ownership. Additionally, these schemes can offer tax incentives for both employees and employers, contingent on the scheme’s adherence to HM Revenue and Customs (HMRC) regulations. Companies seeking to implement share schemes should collaborate with legal and financial advisors to ensure compliance with all pertinent regulations and tailor a scheme that aligns with their specific objectives and requirements.