There is a variety of independent research showing a strong positive connection between employee share ownership and improved company performance. Researchers have looked at different degrees of employee ownership and at particular types of employee share scheme. We have put together a summary of findings of some of the recent research on the Benefits of Employee Share Ownership.
Will a share scheme benefit our company?
Do we need an all employee share scheme or one for our key people only?
The priority for many companies is to create a share scheme for their key people. Others take the view that expanding share ownership more widely will have a greater positive impact. Your own approach is likely to depend on your business, the profile of your employees and how many shares are available for use in your share scheme.
An all-employee scheme is likely to need more administration, although if you wish this can be outsourced.
How do I work out what sort of share scheme is best for my company?
This will need some advice. There is no completely off-the-shelf solution, although most share schemes use the same building blocks. You can learn more by looking at our Which Share Scheme? decision-making tool:
Which Share Scheme for Key People in Private Companies
Which Share Scheme for Key People in Listed Companies
Which Share Scheme for All Employees in All Companies
Are there any particular issues for a listed company creating a new share scheme?
Yes, these include the following:
- Requirements of the Listing Rules, AIM Rules (or rules of other stock exchanges), including whether shareholder approval is needed and rules on dealing in close periods
- The laws on insider dealing
- How investors might wish the scheme to operate (for example, what limits are placed on dilution and whether schemes for senior executives should include performance targets - NB this can affect timing if prior consultation with key investors is appropriate). The Association of British Insurers publishes guidelines on executive remuneration and share plans which are viewed by many investors as representing best practice, so that it might be prudent to have careful regard to these.
- The Companies Act rules on financial assistance where the share scheme features an employee benefit trust
- Disclosure requirements in the company’s annual report
Are there any tax incentives for Share Schemes?
Yes, in the UK there are tax incentives for both your company and your employees, although your share scheme will need to meet some precise requirements to secure income tax reliefs. Tax incentives might also be available in jurisdictions outside the UK. For more information choose the appropriate Which Share Scheme? advice tool below:
Which Share Scheme for Key People in Private Companies?
Which Share Scheme for Key People in Listed Companies?
Which Share Scheme for All Employees in All Companies?
The shares in my company aren't listed. How can employees turn them into cash?
If your company's shareholders are working towards an exit (sale or flotation) that could be made the target for when employees can sell their shares. If you have no specific exit plans, you may need to consider arrangements allowing employees to sell their shares internally.
Does our share scheme need shareholder approval?
We will tell you if this is needed or advisable. In some cases you will need your shareholders to approve the launch of a new share scheme but it won't always be necessary.
Will our share scheme need to be professionally administered?
For most share schemes involving a small number of employees only, we think administration will be straightforward and that it will be most cost-effective and practical for you to do this yourself. For an employee share scheme involving larger numbers of employees, you may want external help, in which case we can arrange that as part of our service. The one area where you may need some continuing assistance is filing an annual return for your share scheme with HM Revenue and Customs, and we will also be happy to assist with that.
My company is not listed. Does it need an employee trust?
A trust can sometimes be useful as a warehouse for a company's shares where it wishes to operate an internal share market or arrange for the purchase of shares from a departing employee. In a limited number of other cases, including where your chosen share scheme is a SIP or where you are creating an employee owned company, an employee trust (or employee benefit trust) may be an important component in your share scheme. However, we think that in many cases you will not need to set up an employee trust. Whilst trusts can play a very useful role in the operation of an employee share scheme, anti-avoidance legislation means that care is needed in the use of a trust (or any third party) to provide shares or other forms of benefit to any employees.
My company is listed. Does it need an employee trust?
In a limited number of other cases (including where your chosen share scheme is a SIP), an employee trust (or employee benefit trust) may be an important component in your share scheme. However, we think that in many cases it should be possible to establish your share scheme without an employee trust. Whilst trusts can play a very useful role in the operation of an employee share scheme, anti-avoidance legislation means that care is needed in the use of a trust (or any third party) to provide shares or other forms of benefit to any employees.
Is an employee share scheme the same as an employee share plan?
Yes, the only difference is that in the UK we tend to use the phrase employee share scheme whereas in the USA and North America the preferred term is employee share plan. Other terms with the same or similar meanings are included in our Glossary
How long will it take to set up?
This is likely to depend on whether your share scheme will need shareholder approval and whether it is to be extended to more than one country. If it does need shareholder approval, you should allow at least three months. If shareholder approval is not needed and it is to be operated only in the UK, your share scheme could be up and running in a matter of weeks. If you choose a Revenue-approved share scheme carrying income tax benefits, it is likely to take a few weeks longer. If, however, the arrangements are to be extended beyond the UK, the timing will depend on the number of jurisdictions involved and the local requirements in those jurisdictions.
How much will it cost?
We won't charge for an initial discussion or meeting at our offices. Once we've then helped you identify a potential solution, we will confirm to you the cost of you engaging us to advise you on more detailed design and implementation. We are normally able to quote a fixed cost but should this not be possible we will aim to provide a cost range with a top limit.
We have built our success on our ability to deliver excellent service at costs noticeably lower than those charged by many larger law firms, accountants and consultants. This is just one of the ways in which we believe our service meets the needs of the private and smaller listed company.
Why choose us to help you create your share scheme?
If you choose us, you will be entrusting the design and setting up of your company's share scheme to acknowledged share scheme specialists and you will benefit from the quality assurance that comes from appointing a regulated solicitors firm. As solicitors we have the expertise to ensure compliance with all the relevant company law, employment law and taxation issues that may apply to your share scheme. We also hope that you will feel confident and comfortable in dealing with us. We pride ourselves on delivering a client-friendly and personal service and our ability to demystify the issues. This is confirmed by our clients, as our Testimonials demonstrate. But we think you'll want to talk to us to decide for yourself, so do please contact us if you would like to arrange a meeting or to discuss your situation by telephone or email.
