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Attracting and retaining exceptional talent remains one of the most significant challenges facing businesses today. Employee share schemes can offer a compelling solution, enabling employers to align the interests of their workforce with those of shareholders whilst providing meaningful financial incentives. Among the options available, Enterprise Management Incentive (EMI) option schemes stand out as a particularly effective and tax-efficient tool for qualifying companies.
EMI options are a type of highly tax-advantaged employee share option that Small and Medium-sized Enterprises (SMEs) can offer to employees if they meet the EMI qualifying criteria. Employers may choose which of their employees receive them and have a great deal of flexibility as to how they design their terms – including when, and the extent to which, they may be exercised, when employees can choose to buy company shares at a set price.
EMI options are particularly attractive as a hiring and retention tool because they can unlock the following benefits:
- Securing talent and fostering loyalty – EMI options enable employers to offer their employees a stake in the company's future success, with unparalleled tax advantages to boot. This is critical to securing experienced and skilled staff and fostering their loyalty and commitment.
- Reducing financial barriers – EMI options provide an accessible way to offer equity with significant tax breaks as part of employees' compensation packages, so small companies that can't match the salaries of industry giants can still attract talent by giving them a slice of the pie – a pie they can help grow.
- Boosting team morale and productivity – When team members know their hard work directly contributes to the growth of the company and potentially increases the value of their shares, they are more likely to go above and beyond in their roles and focus on supporting long-term value creation.
- Enhancing company reputation and investor appeal – Prospective employees are more likely to be drawn to a business that offers opportunities for ownership and growth. This also typically appeals to investors and potential partners who will want to see key staff being effectively incentivised, making it easier to secure funding and collaborations.
- Flexible and inexpensive to set up – Companies have the flexibility to design a scheme that delivers benefits on their terms – for example, allowing exercise only if and when the company is sold, allowing shareholders to keep full control over the share capital in the meantime. An EMI option scheme can be put in place with low upfront costs and no upfront tax changes – although it pays not to cut corners on implementation to ensure the tax benefits are secured, and so specialist legal advice is strongly advised.
The earlier an EMI option scheme is put in place, the greater the tax benefits and incentive impact, provided the scheme is suitably designed and properly implemented.
For companies that don't qualify to use an EMI option scheme, or where an EMI option scheme doesn't meet a company's commercial objectives, a variety of other share incentive arrangements are available.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
