Employee incentive schemes


Many companies offer their employees incentives to reward and motivate them, and to allow them to actively share in the company’s success.

Employee incentive schemes can be complex to set up and run.  This is especially true of equity-based employee incentive schemes. These are schemes in which the employees are given an opportunity to buy shares in their company at a discounted rate, or are given them for free.

The two main types of schemes

  • The first is the share option scheme

The share option scheme gives employees the option to buy shares in the company at a fixed price at a later date in the future. The employees are only able to exercise the option after a period of time known as the vesting period has passed. Once this period has passed, the employee has the option to buy the shares.

If the market price is higher than the fixed price, they can buy and sell and make a profit. If the market price is lower, they can choose not to exercise their option.

  • The second scheme is the share award scheme

This scheme gives the employees actual shares for free or the option to buy them for a discounted rate.

The value of the shares is treated as employment income and therefore is subject to income tax and National Insurance contributions. Employers can opt to choose a scheme that is approved by HM Revenue and Customs to secure capital gains tax treatment on the ultimate profits.

There is another option which was introduced in 2013. This is more of a complete employee contract package, called a shareholder contract. This affects your employees rights as well as giving them share options.

How do you create the schemes?

Specialist corporate and commercial lawyers can design and put together an incentive package for employees on behalf of their commercial clients.

Their service includes assessing the feasibility of proposed schemes and ensuring the efficiency of the scheme structure. In addition, corporate and commercial solicitors will provide ongoing advice throughout the operation of the scheme, including advice on how the impact of corporate transactions will affect incentive arrangements.

The multidisciplinary service covers taxation, design, company law and regulation. In addition, corporate and commercial solicitors will liaise with overseas firms to implement and run multi-jurisdictional incentive schemes.

Contact Law can put you in touch with specialist corporate and commercial lawyers who can provide you with an employee incentive scheme service tailored specifically to your needs.

If you would like help finding recommended corporate and commercial solicitors in the UK, Contact Law can put you in touch with a firm we work with free of charge. So, if you have any questions please call us on 0800 1777 162 or complete the web-form above.

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