How we helped our client motivate employees on a long-term basis at minimal costPosted 2014 by admin
Our client runs a young, but fast growing limited company in the IT industry. He has big plans for the business and sees rapid growth in the next 5 years but understandably wants to retain control and ownership until it’s time to realise his investment.
The company is very dependent on the performance of its workforce and through our discussions with him, he identified the following concerns:
- How best to grow the company?
- How best to motivate and retain key staff?
- How to reward staff in a tax efficient manner?
- All at minimum cost.
We felt that a tax efficient Enterprise Management Incentive (EMI) scheme could be the answer to his problems.
We performed a current valuation of his business and agreed this with HMRC. Having discussed the requirements of the scheme with him, we then prepared the necessary paperwork and obtained the necessary assurances from HMRC.
He then identified the key staff in the business and via the EMI scheme was able to offer them share options in the business for a nominal consideration of £1.
Under the terms of the EMI scheme, the share options could be exercised at the agreed exercise price once an offer had been received for the company from a third party. In the meantime the options would lapse in the event that the employee left the company.
As a result, the selected employees were motivated to both stay and grow the company as they knew that they would ultimately be rewarded through the sale of their shares when the company was sold.
As an added incentive, rather than being rewarded via a short term bonus on which they might suffer tax at 40%, the gain on the EMI shares would qualify for entrepreneurs relief, meaning that the tax liability would be a maximum of 10%.
Because of the implementation of the EMI scheme the management and employees are now working as one towards a common goal for the future success of the business.