If you asked employees out of the blue if they'd like a pay rise, it's unlikely that a single one would turn to you and say, "Thanks, but no thanks", especially given the current economic climate.
But if you asked them whether they'd be interested in a company share scheme, how many would say yes? I'd hazard a guess, not nearly as many.
More and more UK businesses are adopting a company share scheme as a cost-effective alternative to salary bumps, bonuses and other employee benefits.
But many employees aren’t familiar with what that is, what that entails and what it means for them. So let me explain why company share schemes benefit employees too.
What is a company share scheme?
Put simply, a share scheme is a way in which employers can offer their employees shares in the business. This is an appealing option because it gives employees a literal share in the company’s success.
So, if the company they work for does well, in most cases, the value of their shares will too. Their shares could one day become a life-changing financial sum to put towards a deposit on a house or a dream holiday for instance.
In the words of Svetlana Tarnagurskaja, Vestd customer, CEO and co-founder of The Dot Collective:
If people pay their deposits for their mortgages on the back of it, happy days, right?
Sharing equity can be a powerful way to unlock what's called the Ownership Effect, which incentivises employees to perform and encourages them to be emotionally invested in their workplace and its success.
So, it’s easy to see why this might be an attractive option for employers, but why should employees be interested in share schemes? To better understand this, let’s consider a great example of how employee share schemes work in practice.
Why share schemes are beneficial for both employer and employee
At Vestd, we’re all about successful share schemes and our platform can accommodate many. We've even crafted a framework that you can customise according to your startup’s needs - Agile Partnerships™.
You can learn all about Agile Partnerships™ here, but the short version is that Agile Partnerships™ provide founders with maximum flexibility, from the inception of the business right through to exit.
Typically, an agile framework uses conditional Growth Shares, so employees and non-employees can participate. This approach helps startup founders share ownership with key people in a way that is fair and protects the business (and all shareholders).
Your Agile Partnership™ will be based on a pre-agreed set of deliverables. Everybody will be clear on what they need to bring to the party. If someone delivers 100% of what they said they’d contribute, then 100% of the agreed equity will be released.
If they don’t, then they only get a proportion of what was agreed upon. You set the conditions and everyone knows what is expected of them.
Agile Partnerships™ are only one example of the types of share schemes that are available to employees but this gives you a good picture of the benefits a company share scheme like this could offer.
At the core, share schemes are a great option because they allow you to show your employees you value them without having to break the bank.
In the case of EMI (the Enterprise Management Incentive) companies can offset both the cost of the scheme and the tax benefits achieved by their employees against the company’s tax liability.
AND employees only pay a 10% Capital Gains Tax, instead of 20%, when they exercise their options.
Company share schemes like these also encourage your employees to follow through on their deliverables, to be fully engaged and to see that, when they bring their best, their efforts are rewarded.
Read our top tips to keep employees engaged with your company share scheme.
Why company share schemes can be a great alternative to a pay rise
If your company is strapped for cash, you’re not the only one. Whether you’re struggling as a result of the pandemic, the cost of living crisis, or the myriad costs associated with founding a startup, it’s okay if you don’t have money to spare for pay rises right now.
And the point of this blog isn't to say that salary doesn't matter because, of course, it does.
But if you want to show your employees you appreciate them through some type of financial incentive, share schemes are a great way to do that. If you want to learn more about share schemes and how Vestd can help you develop yours, you can check out our comprehensive guide here!
Or book a free, no-obligation consultation with a share scheme specialist to explore your options.