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The Joy of Enterprise Management Incentives
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2 min read

Why do companies give employees shares?

Why do companies give employees shares?
Why do companies give employees shares?

Last updated: 17 April 2024

If you're looking for your next career opportunity, you might be wondering whether to refine your search to companies with share schemes.

There's certainly more of them now.

According to HMRC, in the tax year ending 2021, there were 16,330 UK companies offering shares to their employees. That’s a jump of 6% compared to the last tax year.

Let's explore why share schemes are on the rise, the benefits for businesses, and most importantly, what's in it for you.

Why do companies share equity with employees?

Business owners can reward their employees or key players with shares or share options in their business.

That means that, in effect, they own (or can own in the future) a small part of that business. In some cases, they may receive dividends too.

Typically, the more successful a business is, the more the value of its shares increases - and that directly impacts the gains an employee will make should they wish to exercise (buy) their share options and sell later down the line.

It’s not hard to see what business owners are trying to do here - build loyalty and productivity which, providing the company does well, benefits everybody in the end. 

The Ownership Effect

When a company gives employees a piece of the pie, it unlocks the Ownership Effect, opening the door to a whole host of benefits. These include:

  • Increased loyalty
  • Motivation to work harder
  • Increased productivity (and profits)
  • A boost to employee engagement

Ultimately, it instils a sense of belonging and being a part of something bigger than themselves (something all humans need). Frankly, you're more likely to care about the company's success if you have a stake in it. 

Employers are starting to understand the extreme importance of employee engagement. And sharing equity helps to boost that engagement.

The financial benefits

If the business takes off your shares could become a nice little nest egg. Plus employees and employers can enjoy tax relief under certain schemes.

The UK Government backs several tax-friendly schemes. The four main ones are:

  1. CSOP - Company Share Options Plans
  2. EMI - Enterprise Management Incentives
  3. SAYE - Save As You Earn
  4. SIP - Share Incentive Plan

Tax-wise EMI is a no-brainer for small to medium-sized businesses with fewer than 250 staff. Larger companies tend to lean towards CSOP, SAYE and SIP.

Why? You ask. Well, why not?

When you break it down, it’s not surprising that more and more businesses are choosing to share equity with employees.

Not only does it maintain a loyal connection between employee and employer, but it also motivates the employee to work harder to ensure the success of the business.

Depending on the share scheme, employees can receive tax benefits too, making it an even more attractive proposition. 

In a time when money is tight and small businesses can't afford to increase people's pay as much as they'd like, such schemes are a way to preserve cash flow while helping employees to feel engaged and connected to their workplace.

If you know a business owner interested in setting up a share scheme, why not point them in our direction?

And if you've found your dream job but aren't sure how to ask for equity, read our top tips to master negotiations.

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