Why do companies use share schemes?

The following Share Incentives practice note provides comprehensive and up to date legal information covering:

  • Why do companies use share schemes?
  • Why do companies implement share schemes?
  • What are the types of share schemes?
  • Advantages of share schemes
  • Advantages of share schemes for the company
  • Advantages of share schemes for the employee
  • Disadvantages of share schemes
  • Disadvantages of share schemes for the company
  • Disadvantages of share schemes for the employee
  • Use of share schemes

Why do companies use share schemes?

Why not just reward staff with cash? It is often a simpler, less burdensome way to reward and incentivise employees. This Practice Note analyses the advantages and disadvantages of shares schemes as a general concept. For further details on the advantages and disadvantages of each individual type of scheme see Practice Note: The advantages and disadvantages of each share incentive arrangement.

This Practice Note details:

  1. why do companies implement share schemes?

  2. what are the types of share schemes?

  3. the advantages of share schemes (from a company and employee perspective)

  4. the disadvantages of share schemes (from a company and employee perspective), and

  5. use of share schemes

Why do companies implement share schemes?

There are numerous different reasons why companies choose to implement share schemes and these depend on the size of the company and its specific objectives. Some common reasons for companies utilising share schemes include, but are not limited to:

  1. recruiting, retaining and motivating employees

  2. offering a competitive remuneration package compared to other employers

  3. improving staff performance

  4. nurturing employee loyalty

  5. supplementing low salaries

  6. replacing cash bonuses

  7. utilising tax breaks

  8. reducing employment costs

  9. aligning interests of shareholders and employees

  10. alleviating cash flow issues, and

  11. succession or exit planning

What are the types of share schemes?

There are tax-advantaged and non-tax-advantaged arrangements which companies can adopt. These can be sub-divided into option-based share schemes and award-based

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