Share schemes: how to get employee buy-in

You're eager to implement an employee share scheme, and that's fantastic news! But are your employees on board with the idea?

It's essential that your team is equally enthusiastic and well-informed. Getting their buy-in and engagement is key to unlocking the Ownership Effect.

And with that, your team will have questions, and rightly so. Questions you want to (and ought to) be prepared to answer.

So let’s make sure that you’re well-equipped to explain the significance of your company share scheme and rally your team behind what is genuinely an exciting opportunity.

Shares. Why should they care?

1. What’s in it for me?

One of the first questions an employee is likely to ask is, "What's in it for me?" In other words, why should they care about the company's share scheme?

Well, here's the thing - these shares and options have the potential to translate into a life-changing sum of money. The more effort and dedication your team puts into making the company a success, the greater the potential reward.

Imagine owning a piece of the company's success story. As the company grows, so does the value of those shares. The company’s success could transform your team’s financial future. And that’s an exciting prospect!

2. How many shares?

How many shares they get is up to you. And you can work that out here.

A common misconception is that founders need to give away a huge slice of the pie in order to set up a share scheme, but that’s not the case.

Typically, companies have a total share scheme pool of 5-20%. And within that, specific amounts are earmarked for certain roles, early joiners and future hires.

“Who you reward with significant equity depends on when they joined, and how your company functions, or may function in the future.”

- Co-founder and CEO, Ifty Nasir.

Whatever amount you determine as reasonable and fair - respective to their contribution and when they joined - communicate that clearly. And for trust and transparency’s sake, they ought to understand the logic behind it too.

3. What are my shares worth?

How you calculate the value of their shares now will impact their potential financial gains. Here’s one scenario:

You’ve chosen the Enterprise Management Incentive (EMI), the UK’s most tax-efficient share option scheme.

With EMI options, the exercise price (the price employees pay to purchase the shares in the future) is determined by a company valuation submitted to HMRC at the time.

Transparency is key here; literally and figuratively.

Give your team access to their own shareholder dashboard, where they can see their shares and the company's latest valuation. This empowers them with knowledge about the current and potential future value of their shares. Seeing all of this in realtime will really hit home. 

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4. What can I do with my shares?

They can stick or twist. In other words, once they have access to their shares, they can keep them or sell them.

I’ll use the EMI example again to explain.

EMI options vest over time, which basically means that they’re not available immediately. Instead, employees earn them as the years go by. Once their EMI options have fully vested, they can buy them. We call this exercising, which turns those options into shares.

At which point they can:

1. Hold onto their shares.
2. Sell their shares back to the company.
3. Sell their shares to the company buyer or investor.
4. Explore secondary markets.

The choice depends on factors like share class, associated rights, buyback provisions, and contractual clauses.

It's crucial that your team fully understands the choices they have, and potential outcomes, to make informed decisions about their equity rewards.

5. OK, cool! But when?

How you design your scheme impacts when, how and under what conditions your team can benefit from their equity rewards. For instance:

Exit-only

With exit-based schemes, your team will benefit when the company is following an exit event e.g. the company is sold or goes public (IPO).

Time-based

E.g. 25% of the employee's total allocated shares will vest after two years of service, followed by another 25% the year after and so on. A time-based vesting schedule is one way of improving retention.

Conditional

You can set both time-related and performance-based conditions. Only once those conditions are met can the employee unlock their shares.

Good leavers and bad leavers

If an employee leaves, you can decide whether they keep or lose any vested shares. We say let them keep that which has vested unless they’re a “bad leaver”.

Clarity is paramount here. Ensure that your team fully understands how and when they can realise their equity rewards.

Explore your options with an equity expert.

6. What’s the catch?

No catch, but they need to know the facts. They should understand the intricacies of the chosen scheme.

Going back to our EMI example - the scheme offers superb tax benefits but only if both the employer and employee follow HMRC’s rules. For instance, EMI options have a 10-year exercise window. After that, they lose their tax benefits.

Key takeaways

Answer your team's share scheme questions openly. It helps everyone get on the same page and excited about the journey.

That’s why we created customisable resources for our customers to educate their employees about the benefits of their share scheme. And continue to engage them.

Skin-in-the-game can be life-changing, and as soon as they understand that, they’ll be more invested in the company's success.