We advise listed and private companies on how they can pay and incentivise their employees, management and senior team in tax efficient ways. We also advise employees and executives who are being offered participation in incentive arrangements.
With a combination of tax and legal knowledge, supported by practical experience gained across a range of sectors, we provide cost-effective solutions that help businesses to recruit, retain and motivate talent.
The success of any business is dependent upon the ability to recruit, retain and motivate its key employees. Companies are, however, under pressure to control the cash cost that this involves; facing the challenge of balancing overheads whilst motivating key personnel.
We advise businesses on designing their employee incentive strategy to minimise cost whilst maximising employee engagement and tax efficiency. We advise executives and employees on the commercial and taxation implications of participating in incentives.
We have been very pleased with the work that Wright Hassall has carried out for us. We have always found the team very responsive to our needs – producing work to a high standard to the required timescales, and answering queries often at short notice.
Why introduce an incentive scheme?
Companies implement share schemes for a number of different reasons and the motivations behind each arrangement will vary depending upon the nature of the business, shareholder goals and the employees in question.
Common reasons for implementing share schemes include:
- Recruiting new staff – with shares or share options often enabling businesses to recruit new joiners with the promise of sharing in the growth of the company. For growth companies in particular, share schemes can give them an edge against more established businesses where shares may either not be on offer or the potential upside is far less.
- Retaining key staff – as the “battle for talent” remains, having an existing share interest can help ward off potential suitors for key employees. Properly designed employee options or shares will be linked to an employee’s continued service with value being forfeited if the employee decides to leave the company. Many of our clients look to reward length of service with share awards vesting over time in ‘line’ with continued service.
- Motivating existing employees – carefully designed share schemes will reward employees for achieving key business goals, whether that is achieving an exit or intermediate personal or corporate targets. Many of our clients design their incentive plans to link reward to performance with increased returns to employees as performance improves.
- Aligning employee and owner interests – shares or share options can help employees to start to think and operate as business owners by having a genuine a stake in the capital value of the business.
- Psychological benefits – offering shares can have a powerful impact on employee behaviour and can provide much more of a tie-in to the business than salary and annual bonuses.
- Performance improvement – academic research supports the view that businesses with employee ownership or where employee have a potential future stake perform better than those do not offer share participation.
- Tax breaks – successive UK governments have recognised the value to the economy of employee ownership and offer generous tax savings to both companies and employees alike. Gains on shares can be delivered at tax rates of between 0%-20% whereas equivalent cash bonuses can be taxed at as high as 47% in employees’ hands and with 13.8% employer’s National Insurance. The financial benefits of a gain from shares can therefore be significantly greater than through cash.
- Succession planning – share schemes can act as a means of bringing new talent through to an ownership and management roles and transition a change of ownership from old to new management. The upside of employee shares can also be used to assist management buy-outs.
How incentives can help
Well-designed employee incentive plans can help deliver significant benefits to a business through:
- Helping to recruit new staff;
- Aiding with the retention of key employees;
- Aligning the interests of shareholders and employees through motivating employees to work towards desired business goals;
- Articulating how value is created for a business and rewarding employees for that value creation; and
- Providing rewards to employees in a tax and cost efficient manner for the employees, business owners and the company itself.
How we can help
We are able to help with all aspects of employee incentives and employee share schemes, including:
- selecting the right type of arrangement for your business/employees;
- designing the detailed key terms;
- drafting all related paperwork;
- liaising with share valuers;
- communicating the arrangements to employees; and
- managing with the ultimate vesting/pay outs under incentives.
We advise on a wide variety of incentive arrangements across a diverse range of sectors, ranging from one key employee in a start-up right through to all-employee plans involving thousands of employee participants.
When we can help
We can help at all stages of the lifecycle of employee incentive arrangements, including:
- Choosing the right arrangement for you;
- Designing the detailed key commercial and financial terms;
- Drafting all relevant legal papers – covering incentive and underlying share rights;
- Liaising with HM Revenue & Customs and other advisers, including share valuers;
- Communicating the arrangements to key stakeholders – including employees and shareholders; and
- Managing the process through to completion.
- Reporting the grant of Enterprise Management Incentive options to HMRC;
- Registering tax favoured plans with HMRC; and
- Reporting employee incentive activity to HMRC following the end of each tax year.
Maturities/other post-award events
- Managing maturities under existing incentives, including:
- Reviewing the extent of vesting;
- Reviewing the taxation implications and advising on relevant compliance obligations; and
- Reviewing the impact on existing incentives of (amongst other things):
- Changes in business activities;
- Changes in share capital structure; and
- Departing employees.
- Advising on the impact of transactions on existing incentive plans;
- Identifying tax and cost saving efficiencies;
- Identifying and managing tax costs and compliance obligations; and
- Managing retention risks, including the transition between pre and post deal incentive arrangements.