How introducing share options can minimise staff turnover – EMI schemes in a nutshell

Businesses are prioritising staff retention more than ever. The negative impact of a high staff turnover on their service levels and therefore revenue is so important to avoid.

So, how can you create something of value to employees that has a real impact on motivating them to stay loyal?

One of the methods available is to introduce an EMI (Enterprise Management Incentives) scheme. EMI schemes are share options that provide statutory tax relief for employees on their financial gains i.e. they do not pay income tax or National insurance on the difference between what they pay for the shares and what they are valued at when the option is granted.

The basis of the EMI scheme is that the employees who are selected can receive shares at a certain value (usually agreed when option is granted) at a certain point in the future. The criteria for the point that they are issued could be targeted turnover, targeted profits or even on sale of the business.

We have recently been involved with clients who were preparing their business for sale and utilised EMI to retain key staff to date of sale. At date of sale, the employees received the shares at the option price and then received an uplift to the sale price immediately. This added value to the sale of the business so everyone benefitted.

This is an HMRC approved scheme and there are some restrictions including the following:

• Gross Assets need to be less than £30 million
• Certain trades are excluded including Banking and Farming
• Shares must be Ordinary shares but do not necessary require same rights as existing shares
• The company must be independent i.e. not a subsidiary or controlled by another company
• Must be permanently established in UK
• They may be liable to Capital gains on disposal

If you wish to discuss the above further, please do not hesitate to contact us.