Employee Incentivisation

The recruitment market is tough, not just in the UK but worldwide and across industries.  This won’t come as a surprise to anyone reading this article, but what is less well known are the alternative ways to improve employee incentivisation that have HMRC’s seal of approval.

The goal of incentivising employees is to create a culture of high performance and productivity, where your employees are motivated to perform at their best and contribute to the success of the company. 

Of course, alignment with the ethos and values of the company is critical, but we can also use incentivisation schemes to motivate and to encourage alignment with the company’s overall goals and objectives.

Outlined below are two of the HMRC approved employee incentivisation schemes I regularly advise on, together with a methodology to make such schemes more accessible.

Enterprise Management Incentive (EMI) schemes

An EMI scheme is a type of employee share option scheme that allows key employees to acquire shares in their employer’s company as a way to incentivise and reward their contributions to the company’s success. 

Under an EMI, the eligible employees are granted the option to purchase shares in the company at a pre-determined price at a future date.  The key advantage of an EMI is that it can be a very tax-efficient way for employees to acquire shares in the company they work for.

But, you must carefully design and administer your EMI scheme, ensuring it is compliant with all relevant regulations, seeking advice from financial experts to ensure the scheme is properly structured and implemented.

Cashless exercise of options

Cashless exercise of options refers to a method of exercising stock options without using any cash to pay for the exercise price.  In a cashless exercise, the employee exercises the option by using a portion of the option’s intrinsic value to cover the exercise price and any applicable taxes, fees and commissions. 

Cashless exercise is a popular choice among employees who do not have the financial resources to pay the price upfront.  It allows them to receive the benefits of their stock options without having to borrow to cover the price.  

But it’s important to note that cashless exercise may have tax implications, so employees should always consult with a tax expert to understand how exercising their options will impact their tax liability.

Share Incentive Plans

This is an all-employee scheme designed to encourage the entire workforce to take a stake in their employer.

It allows shares to be purchased using pre-tax earnings from the employment, so there is a tax saving on the way in.  Then, as long as the shares have been held for at least 5 years, they can be sold free of capital gains tax, so there is a further tax benefit on the way out.

There are also other methodologies built into the scheme to enable employers to reward their employees tax efficiently using shares, so this can be a very attractive scheme for the right type of organisation.  The level of employee alignment that can be created by this scheme is significant.

Employee incentivisation is an important aspect of talent management, playing a significant role in attracting, motivating and retaining key employees. 

Whether through cash-based incentives, non-monetary rewards or employee share option schemes, companies can leverage a range of strategies to incentivise and reward their employees for their contributions to the organisation’s success.