Why you should think about revisiting employee equity!

Employee engagement is increasingly important in today's evolving workplace, particularly with the rise of remote and hybrid working.

Now is the time to review your approach to employee incentives, considering both existing talent and future recruits.

What are the key ways to incentivise employees?

• Share based pay - Equity incentives can reward performance and encourage employees to remain with the business. Depending on the structure and applicable tax rules, they may offer more favourable tax treatment than cash remuneration. Share options allow employers to set conditions for exercise, such as company performance targets or continued employment, aligning employee and business interests.
• Growth shares - Growth shares can offer flexibility for smaller businesses. They are a separate class of shares designed to participate in future growth above an agreed hurdle, often linked to company value or an exit. As they may have limited initial value, employees can potentially acquire them at a lower cost than ordinary shares, while benefiting from future growth. They may also be worth considering where EMI options are unsuitable, including for consultants or non-executive directors who do not meet the relevant eligibility requirements. The tax treatment depends on the structure and circumstances.
• Employee ownership Trust - An Employee Ownership Trust (EOT) can facilitate a transition to employee ownership by acquiring a controlling shareholding in a company for the benefit of its employees. Qualifying disposals may benefit from Capital Gains Tax relief, although for disposals on or after 26 November 2025, only 50% of the gain is exempt, subject to the statutory conditions
• Employee Benefit Trusts (EBT) - serve a broader purpose and can support employee share arrangements or provide a mechanism for existing minority shareholders to exit. Companies may also use treasury shares to hold and reissue shares for employee incentives, subject to the applicable company law requirements and availability of distributable profits for a purchase of own shares

Time to start planning?

Employee equity can help businesses attract and retain talent, particularly where cash remuneration is constrained. With careful planning, it may be possible to offer employees an affordable route to equity participation and the opportunity to benefit from future growth, while achieving appropriate tax treatment.