Managers and key employees who acquire shares in the business they work for can do so in a variety of different ways. At Wright Hassall we provide specialist advice on the most appropriate form of share incentives for companies with the aim of helping our clients to maximise the value derived from them.
Some of the ways in which the incentives may be structured are outlined below.
Enterprise Management Incentives (“EMI”)
Commercially flexible options (rights to acquire shares in the future) with a streamlined grant process. EMI options offer potentially significant tax breaks for qualifying companies and employees.
Share acquisition plans
Shares are acquired by employees which may be subject to commercial performance targets (to aid in motivation) and leaver provisions (to assist with retention). Useful generally where the market value of the shares is low.
Deferred share plans
Up-front share acquisitions but without triggering an immediate cost to employees. Deferred Share Plans offer tax savings to employees and employers but there are additional legal and tax issues to consider. Useful where EMI isn’t available and particularly relevant where reducing employee tax costs is vital to the incentive.
Growth share plans
Employee shares are acquired with restricted economic entitlements but with the potential for employees to share in the eventual growth in value of the business. Growth shares provide tax and funding cost benefits to employees and tax savings to the employer. Such shares may offer significant savings where the current market value of shares is already substantial.
Joint share plans
Shares are jointly held by employees and an employee trust on the basis that the employees are entitled to a share in the future growth in value of the company (possibly in excess of a target hurdle). Joint shares provide tax and funding cost benefits to employees, together with employer tax savings.
Company share option plans
Tax efficient HMRC approved options but with relatively limited flexibility and valuation caps. Useful where options are preferred to shares and where EMI is not available. May be making something of a comeback as a result of the recent changes to the capital gains tax rules.
Unapproved options
Flexible but relatively tax inefficient options which can be used as a top-up to other arrangements or as a stand-alone incentive.
Phantom option plans
Cash based incentives with the value of the payouts calculated by reference to increased share values. Phantom options are flexible and help to avoid share dilution but are relatively tax inefficient.
For more information on these incentives (together with all-employee plans and bonus related incentives) please contact John Dormer.
