Types of share incentive scheme

Almost all listed companies offer some form of share scheme or incentive to their executive directors and employees. Shares schemes and incentives are also offered by many other companies, private and public. For a brief guide to such schemes, see Practice Note: Introduction to employee share ownership schemes.

Reasons for adopting share schemes and incentives

The main reason for offering share schemes and incentives is to recruit, retain and motivate employees. They often supplement low salaries and avoid the cash flow issues associated with paying cash bonuses. Share schemes and incentives are also used to help align the interests of employees, particularly senior executives, with those of shareholders, the aim being to encourage senior executives to consider the best interests of shareholders in their management of the business.

Share schemes and incentives can also reduce employment costs. Tax legislation has been used to put in place specific share scheme and incentive structures that offer valuable tax breaks, both to companies and employees.

For more information as to why a share scheme or incentive may be put in place, see Practice

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