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The Joy of Enterprise Management Incentives
Read our free guide to the UK's most tax-efficient share scheme.
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5 min read

Replace your bonus scheme with a share scheme

Replace your bonus scheme with a share scheme
Replace your bonus scheme with a share scheme

Last updated: 7 June 2024.

So, you want to reward your team. You might be thinking that an end-of-year cash bonus is the best option. After all, it’s the tried and tested way. And it would certainly be a nice start to the holidays.

But have you considered sharing equity instead?

We know that the Ownership Effect has a positive impact on productivity, engagement and retention - that's why employee share schemes are so powerful.

In fact, a whopping 95% of Vestd customers said that their share scheme has improved employee loyalty.

According to HMRC, more than 16,000 UK companies operate tax-advantaged share schemes. That's almost double the numbers seen 10 years before.

So what's behind this rise in popularity? And how can shares possibly compete with a cash bonus?

Why offer shares instead of a cash bonus?

Employee engagement

Well, employee engagement is crucial to business success. And if there’s one thing that share incentives do, it’s to increase engagement (as proven in numerous studies).

Once a cash bonus is paid, that’s that. They’ve crossed the finish line, but now what? The key is keeping employees engaged for the duration they are with you. 

A share scheme is a long-term incentive rather than a one-time reward.


With schemes like the Enterprise Management Incentive, employees become option holders with the opportunity (but not the obligation) to become shareholders in the future.

And by that point, the shares could have considerably increased in value which could, in turn, be more financially rewarding than a one-time cash payout. 

Alternatively, growth share schemes offer the best of both worlds; shares and cash rewards in the form of dividends if you desire.

Like EMI options, growth shares can be conditional, so the release of equity is tied to performance. I'll touch on EMI and growth shares in more detail later.


There's an argument that cash bonus schemes can have an adverse effect.

Dangling a performance-based bonus in front of someone can put them under unnecessary pressure and lead to overly competitive behaviours - with people not necessarily acting in the best interests of the business (or each other).

Employee ownership, on the other hand, fosters a sense of camaraderie.

Team members are more likely to work together well to ensure the future success of the business because it's in all of their interests. "If the company succeeds, so do we".

Nothing aligns a team quite like a share scheme.


Cash flow

Not only that, but countless companies are still recovering from the impact of the pandemic. And few businesses are flush with cash right now, not in this economy, especially startups and SMEs.

So forking out a lump sum per employee may not be possible right now or in the next 12 months, no matter how well deserved. But by introducing a share scheme, you can show your team that the company values them and preserve cash flow.

Plus, with some schemes like EMI, you can offset the cost of setting one up through Corporation Tax relief.

Tax relief

The UK is one of the top places in the world to dish out share options as employees don’t pay any tax upfront, only when they go to sell them.

For eligible startups and SMEs, EMI makes the most sense. Employees can usually claim Business Asset Disposal Relief, meaning they’ll only pay 10% Capital Gains Tax instead of the usual 20%.

These are just a few reasons to seriously consider swapping your employee bonus scheme for a company share scheme.

Common reservations


What motivates the people in your team? What makes them tick?

If it's the prospect of a cash bonus, then it's a cash bonus, as simple as that. And in this economy, who can blame them? In that case, proposing shares as an alternative may not be the best play.

But if you can afford to pay out, then what's stopping you from doing both? You could offer both a bonus scheme and shares in the business, so they benefit now and potentially later on too, just in a different way.


Some argue that a bonus scheme is less risky than giving away equity. What they don't know is that you don't have to 'give it away'.

If you design a share scheme the smart way, there's zero risk to existing shareholders because you can put a vesting period in place. That vesting period determines how and when employees can earn their shares or options.

When and how exactly their equity is released is based on the completion of time and/or performance-based conditions. We call this conditional equity.

So if someone doesn't deliver on their promises, they won't walk away with a piece of the pie. But if they stick around for the long haul and get the job done, they get their equity reward fair and square. 

So really, there's nothing to lose.

And, as I mentioned earlier, if the company is a great success, that equity reward could be life-changing, and potentially a lot more valuable to employees than a cash bonus subject to tax at the normal rate.

Once you've given someone a bonus, what's stopping them from packing up their things once the money lands in the bank? Where's the incentive to stay?


Setting up a share scheme requires a bit of admin and ongoing management. And absorb a fair amount of your time (and money) too if you loop in accountants and lawyers.

Company directors are also legally obligated to update Companies House about any changes to the shareholder register and new share issuances.

But fear not.

Managing your scheme on a purpose-built (and cost-effective) platform like Vestd will save you heaps of time and help you avoid compliance headaches. Vestd is fully synced to Companies House, so you can record any significant changes at the click of a button.

Keeping on top of things from a compliance perspective is particularly important for government-backed schemes like EMI, as HMRC requires annual notifications and valuations. Otherwise, you risk losing the tax benefits. 

Speaking of, let's dive into a bit more detail about some of the share schemes already mentioned.

Let's compare

Cash bonus vs EMI options

EMI is a government-backed share option scheme, specially designed with SMEs in mind, that offers huge tax advantages.

Traditional company bonuses incur Income Tax and National Insurance at the usual rates, whereas EMI option holders pay just 10% Capital Gains Tax on any gains when the shares are sold.

Cash bonuses are subject to Income Tax and National Insurance.

The table below outlines the tax efficiency of EMI compared to other share schemes.

Scheme comparison chart

Not every company qualifies for EMI, but that's fine. There are other attractive alternatives, like growth shares.

Cash bonus vs growth shares

Unlike EMI options, growth shares are real shares issued upfront.

Growth shares can be awarded to non-employees, enabling anyone contributing to the success of the business to share in that success. Growth shares are more flexible than EMI options in that respect, with fewer restrictions.

What's more, recipients don’t have to pay Income Tax on award either, only CGT when they go to sell them.

Because growth shares can be conditional and recipients can receive dividends, the scheme has parallels with a conventional employee bonus structure. But with the added benefit of the Ownership Effect - something a bonus scheme can’t offer!

If recipients never meet those conditions, the allocated shares can become deferred shares (worthless).

Conditional growth shares are integral to our Agile Partnerships framework which founders use to devise 'co-founder prenups' and transfer ownership to new management.

Other schemes

There are other alternatives such as unapproved options, which may be better suited to your circumstances. 

Unapproved option schemes aren’t nearly as tax efficient as HMRC-approved schemes like EMI, but like growth shares, offer greater flexibility and fewer formalities.

With an unapproved option scheme, employees, advisors, contractors and consultants (even key people overseas) can all get a slice of the pie. And you can stipulate performance-based conditions to give you peace of mind.

Share schemes made simple

By now, you might be thinking of scrapping your bonus scheme altogether and sharing equity instead. Or at the very least, curious to learn more!

Book a free consultation today and tell us about you, your company and your team. One of our equity specialists will walk you through the various schemes.

Talk to the experts

They'll also demo the platform so you can see just how simple share scheme management can be.

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