How to use share incentives to increase employee engagement

Businessman hand touching plus sign icon means to offer positive thing (like benefits, personal deve

Giving employees shares is a great way to reward and engage them - but it is essential to set the share scheme up correctly to protect the business - Credit: Getty Images/iStockphoto

Share incentives are an affordable and effective way to boost employee engagement and secure future business growth. Lisa Hayward of Birketts explains why you should be using them. 

Birketts, Archant, Pure and eras make up Best Employers

Best Employers Eastern Region operates on a not-for-profit basis to support business - Credit: Archant

As the country emerges from lockdown and businesses seek to ‘bounce-back’ from the UK’s first recession since 2008, employers will look to their workforce to secure their company’s future. For some, this will include needing to incentivise staff who have worked incredibly hard during this period of pandemic, most likely without a pay review or bonus. 

At a time where safeguarding cash reserves is a high priority, share incentives can be an affordable, effective and more tax-efficient tool to recruit, retain and engage employees.

Unlike cash-based bonuses, share-incentive schemes will not deplete cash reserves. But it isn’t simply about saving cash in the short term.  

Lisa Hayward of Ipswich law firm Birketts

Lisa Hayward of Birketts can advise on how best to set up a tax-advantaged employee share incentive scheme - Credit: Birketts

Employee engagement is one of the most important contributors to overall business success. Research carried out by Gallup in 2020 demonstrates that businesses with higher levels of employee engagement experience lower levels of absenteeism and increased customer loyalty and profitability.  

Share incentives deliver higher levels of engagement. Government research published in 2020  highlighted that employees involved in tax-advantaged employee share schemes feel an improved sense of engagement and loyalty to their employer. Employees reported feeling like “more than just an employee” along with an increased sense of job security because of their involvement in the scheme. 

Share incentives are good for employers too. In the same research, employers reported seeing increased motivation and engagement across their workforce, with more employees taking an active interest in business productivity. In addition, there is evidence to link employee share ownership to improved company performance measures, such as turnover and profitability, with tax-advantaged share schemes demonstrably increasing company productivity by 2.5% over time.  

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Whether you are looking to reward those people who weathered the pandemic with you or to motivate your key management team to drive your business forward as part of your business’ ‘bounce-back’, share incentives are something you cannot afford to overlook.

Where do you start? There are a number of HMRC approved tax-advantaged share schemes to choose from. These include the ever-popular discretionary schemes such as Enterprise Management Incentives (EMI) and Company Share Option Plans (CSOP), which are tools for targeting key employees.  

There are also beneficial ‘all employee’ schemes such as Save As You Earn (SAYE) and Share Incentive Plans (SIP) for those looking to establish a wider employee-ownership culture. Some of these plans offer direct share ownership to employees, while others offer employees an option to acquire shares in the future when a specified trigger event occurs.

All of these plans offer tax savings for both employees and employers, as long as the legislative conditions are met. To maximise the benefits afforded by share-incentive schemes, it is important to use one that aligns with your business objectives and is tailored to your company and its workforce.  

For further advice on implementing a share-incentive scheme for your employees, please see Birketts or contact Lisa Hayward, Head of Employee Incentives at Birketts LLP

For more information about Best Employers, click here.
 

If you would like to study the research quoted in this piece, please refer to:
Gallup Q12 Meta-Analysis (2020) “Employee Engagement and Performance: Latest Insights from the World’s Largest Study” (which showed an 81% drop in absenteeism, a 10% increase in customer loyalty and a 23% increase in profitability across businesses with higher levels of employee engagement).
HMRC (2020), “Tax Advantaged Share Schemes 2019”
Oxera (2007), “Tax Advantaged Employee Share Schemes: Analysis of Productivity Effects”


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