If your business is not cash rich it is often difficult to incentivise and retain your key members of staff, without paying out big cash bonus payments each year.
A good alternative to a cash bonus is to enable your employees to acquire shares in your company and to participate in the future growth of the business, incentivising performance and encouraging retention.
Remember that you don’t have to give away a massive proportion of your shares to make the incentive worthwhile. You can also use shares that have no voting rights and no rights to dividends if you prefer.
EMI (Enterprise Management Incentive) is usually the most efficient and flexible way for owner managed businesses to pass shares to their employees.
This HMRC approved scheme allows options to be granted to key employees over shares which they can purchase at a set price at a future date.
Subject to a few restrictions, as the employer you have flexibility over who gets the shares, how many they get, what price they ultimately pay for them and when they will receive them, usually this is restricted to when you ultimately sell your business, but if you have no plans to sell an alternative would be to consider using an employee benefit trust or similar to provide a market for the shares.
At their most efficient EMI shares will be taxable on the employee only when they are sold. The employee will pay capital gains tax on any growth on eventual sale. All shares acquired through an EMI scheme can qualify for entrepreneurs relief meaning that any tax payable is at a rate of only 10%, a massive tax saving of up to 36% for the employee when compared to a cash bonus.