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Why the UK's share scheme culture is surging

Why the UK's share scheme culture is surging

Equity has long been a driver of the entrepreneurial spirit in the US. That's not quite the case in the UK, however. At least, it's not at the moment, although it is catching on, just at a steadier pace. 

A different culture exists on this side of the pond. But why is that and what does the equity landscape look like right now in the UK, specifically in startups? 

Who’s up for a game of ping pong?

Ask anyone looking for work about what they can expect when joining a startup, and you'll hear the usual: cycle schemes, beer o'clock Fridays and everyone's favourite, ping pong.

These common perks are often criticised for not addressing core employee needs. Instead, they're seen as superficial and don't reward talent in the long run.

Offering a more meaningful alternative

Embracing an equity-sharing culture transcends the superficial allure of trendy office perks. It gives employees a genuine stake in the collective success and longevity of the company. Unlike a fleeting game of ping pong or a casual Friday, sharing equity cultivates a sense of ownership and aligns ambitions among employees.

It's an invitation to be part of something larger, a shared journey towards growth and innovation. While trendy perks may impress initially, the enduring value of a share scheme provides a solid platform for a motivated, engaged and mutually invested workforce.

So, what's a share scheme?

A share scheme is a structured programme that gives employees a stake in the company they work for in the form of shares or share options. It aligns the interests of a business with its team, nurturing a culture of collective growth and shared success.

Beyond simply being employed, a share scheme is an invitation to be literally and emotionally invested company's journey, one that can pay dividends if the company grows.

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Who’s using share schemes?

Apple is one example of a company offering equity. Employees at the tech giant can participate in the Employee Stock Purchase Plan (ESPP), which allows team members to buy stock at a discount through payroll deductions.

The discounted price and potential for financial growth make the share scheme a more substantial benefit compared to other perks and give employees something to really invest in.

So why hesitate?

UK startups might be reluctant to use equity share schemes for a variety of reasons, such as a perceived complexity in setting them up. A lack of knowledge or experience may also contribute, as there still isn’t a whole heap of resources around them.

Then there are the potential concerns about diluting ownership, not to mention regulatory hurdles and tax implications that may come into play. Or, quite simply, it could be that this sharing culture isn't as strong in the UK.

There isn't a version of The American Dream over here other than perhaps owning your house. That's not to say people in the UK aren't aspirational, but it's not a country that shouts about what it has from the rooftops. That in itself could be a reason why startups don't offer equity, as they don't think there's an appetite.

Why share schemes WORK

Share schemes are good for both the business and employees when designed the right way. Let’s take a look at some of the key benefits of offering a share scheme at your startup.

Alignment of interests

When employees own a piece of the pie, their personal and professional goals connect with the company’s vision on a deeper level.

This, in turn, nurtures a culture of dedication and shared aspirations. There is more accountability and commitment, which drives employees to contribute their best towards the collective success of the company.

Attraction and retention of talent

Startups want to hire and retain the best talent; people who can move the needle and be part of the company’s growth. The idea of contributing to and sharing in the company's success is a powerful magnet to attract such talent. Put it this way, a share scheme is far more alluring than pizza parties and casual Fridays.

Financial upside for employees

Let’s not beat around the bush. The financial aspect is a significant draw for talent. Having skin in the game could pay off in the long run if the startup's growth trajectory keeps going up. 

The tales of employees reaping significant financial rewards from equity schemes aren’t reserved solely for Silicon Valley lore. These success stories, though more prevalent in the US, are a testament to the tangible financial upside awaiting employees and companies alike.

Changing dynamics in the UK

The good news is the tide is turning, and more companies are offering share schemes to employees.

According to HM Revenue and Customs, some 16,300 companies were operating an employee share scheme by the end of 2021. That's a 6% increase on the previous year.

The current economic climate, however, has led to some setbacks. A handful of companies in Europe and the UK have backed out of share schemes. This hasn't gone down well with employees, and it's a surefire way to deter top talent.

Moreover, there seems to be a general consensus about the need to create more millionaires through share options.

Not only that but many employees and companies are advocating for a change, including Vestd!

We believe that sharing ownership can lead to economic prosperity and foster a new generation of innovators in Europe. 

Based on our analysis, if just 250,000 more businesses set up share schemes, it could generate a £2.4bn boost to the UK economy.

And we're not the only ones backing this. The UK Government is keen to hear people's views on schemes such as Save As You Earn (SAYE) and the Share Incentive Plan (SIP) to see how they might improve them.

All in all and with all of this in mind, it's a promising sign that we're moving towards a more inclusive and empowering corporate culture. 

Make it equitable

Equity is a way to attract and motivate talent, especially for cash-strapped startups that can't compete with larger corporations on mega salaries. Offering shares boosts a startup's long-term competitiveness and cultivates an environment where everyone has a vested interest. 

Sounds good, right? Book a free consultation today to get your company share scheme set up.

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