Keeping your key management engaged, motivated and aligned with the company goals can be the key to a successful business but how do you do this when your competitors are willing to pay top dollar for quality people with sector experience?
Shares in EMI set up
Whilst salary can only go so far in remunerating your management, equity in the business can be the tool which locks in the figures that your business needs to grow. Allowing a member of staff to buy into the business not only makes it less likely that they will leave but also gets them thinking like a shareholder – because they are – and gives them a vested interest in the success of the business. Whilst their salaries can only be worth so much equity keeps working when they are not.
Whilst allowing management to buy into a business can be a great fantastic for incentives, if it’s not done in the right way it can have serious tax implications which can become a financial burden for those involved.
The problem is that if a business gives an employee shares they are in essence giving them something of value, which from HMRC’s perspective is captured as a taxable benefit, so they want their slice through income tax and national insurance. This can result in very large income tax bills for the management you were trying to incentivise and might well result in them heading off to work for your competitor with the shares you’ve just sold them already banked.
A well-structured Enterprise Management Incentive (EMI) scheme deals with this problem. Firstly, it gives your employees the option to buy shares – at a specific, usually below market price, price - in your business without actually giving them shares then and there. This gives your members of staff a reward for staying with the business, a stake in the overall success of the business and avoids all the tax issues that could crop up if you were just to give or sell them shares at below market rate.
As well as all this, the EMI scheme can also have corporation tax benefits for the issuing company which will usually get a reduction in its corporation tax charge equal to the market value of the shares less the amount paid for those shares.