Why use a share scheme?

By Tolley in association with Andrew Rainford

The following Employment Tax guidance note by Tolley in association with Andrew Rainford provides comprehensive and up to date tax information covering:

  • Why use a share scheme?
  • Size of organisation
  • Top 10 list of reasons for utilising share-based incentives
  • A warning on dividends

If you talk to enough company directors, it becomes apparent that there are numerous reasons why they have decided to implement share schemes. For the most part, employee share incentive arrangements are only introduced after considerable thought and planning. As a result there is every chance that they will fulfil an organisation’s expectations.

However, on occasion share schemes are implemented at the suggestion of professional advisers who have not fully explained the benefits. This is clearly not the best route to derive maximum benefit for the company or its employees.

The underlying factors that lead companies to introduce schemes tend to be very different depending on their size. Ultimately though, the main goal is almost always to persuade employees to perform better and in doing so help the company or group to achieve the best results possible.

Size of organisation

Large companies, such as those quoted on the FTSE 100 list, generally offer a number of different share incentives arrangements, primarily because the market and their investors expect them to.

Typically, this will include significant offerings to top directors that might often be potentially worth more than their annual salaries. However, these will be linked to performance targets and may never get paid.

From time to time there is controversy about directors who apparently underperform but still receive massive share-based payments. This has become a consideration for those running schemes in larger companies.

At a lower level, company-wide schemes are regarded by such organisations as a usual or even necessary part of employment packages.

Middle ranking companies are more likely to present packages to key employees but not necessarily to everyone else. They will probably be keen to use selective schemes such as EMI, CSOP or flexible (but not tax-advantaged) share options, but rather than exclusively offering the plan to directors, they may extend it to senior

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