Set up employee share schemes

Here's how I set up a successful employee share scheme

React Engineering Ltd, based in Whitehaven, Cumbria, provides specialist consultancy services to the nuclear decommissioning industry. Director Trevor Craig explains how the company set up a share scheme to motivate, retain and reward key employees.

What I did

Decide objectives

"The specialist service we provide relies on employing the best people in the field. Our business plan, developed with the help of Business Link, is to secure the longevity of the company by bringing on key staff and facilitating succession.

"We wanted to ensure that those responsible for long-term success stayed with us. One of the keys to achieving this goal was to set up an employee share scheme."

Get advice

"We largely devised the scheme ourselves, based on our objectives. We took advice from specialist accountants and lawyers which proved invaluable. There are HM Revenue & Customs-approved schemes that provide tax advantages for employers and employees, but, with advice, we decided against them because we needed greater flexibility.

"However, we still needed HM Revenue & Customs approval for parts of our scheme, which our accountants secured. It's also good practice to advise all employees eligible for the scheme to get independent advice before they sign up."

Choose a scheme

"With the help of our advisers, we decided on a scheme that was a mix of share awards and share purchase. The share awards gave key employees a "gift" of 4 per cent of the company over a period of five years, dependent on performance targets. This served as encouragement to grow the business. The key employees were also given the opportunity of purchasing a further 2 per cent. This provided a further incentive for those involved to stay with us.

"The scheme was initially made available to three existing employees, but we built in room to offer it as an incentive to attract other key staff. We set a limit of eight employees who could benefit from the scheme at one time, so that the company founders would continue to retain the majority shareholding.

"Although we only introduced the scheme recently we are confident, having gone through the process and worked with our colleagues, that it will prove a cost-effective way to achieve our recruitment and succession objectives."

What I'd do differently

Fit schemes to people

"When you're considering the options, you have to think of the company's goals, but you also have to consider the needs of the employees you're hoping to retain. If we did it again, we'd make sure that our succession plan was built around our people, not just around job roles, then make the scheme fit the plan.

Allow time

"The scheme we chose was relatively easy to administer, but I think we underestimated the amount of paperwork involved and how long it would take. The process took about six months, from agreeing the scheme to signing contracts and transferring the first batch of shares."

Subjects covered in this guide

• Introduction
• Defining share option and share award schemes
• Employee share ownership - for employers
• Employee share ownership - for employees
• Different schemes - an overview
• HM Revenue & Customs-approved schemes: CSOP and EMI
• HM Revenue & Customs-approved schemes: SIP and Save As You Earn
• Taxed employee share schemes - taxed, phantom and long-term incentive share plans
• Taxed employee share schemes - restricted, convertible and benefit trusts
• Choosing the best share scheme for your business
• Set up a share scheme
• Here's how I set up a successful employee share scheme

 

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