Employee share schemes are becoming increasingly popular as a way of incentivizing and retaining employees. They allow staff members to own a stake in the company they work for and can be a powerful incentive for employees to work hard and stay with the company. However, many employers and employees are still unfamiliar with how employee share schemes work, so here is an explanation of the basics.
What is a share scheme?
An employee share scheme is a way for a company to provide its employees with certain shares or stock options in the company. Typically, the company will provide a certain number of shares to the employee, either at a discount or for free. The employee can then either sell the shares back to the company or keep them and benefit from any increase in the share price. It is important to note that most share schemes are subject to certain vesting conditions – usually, the employee will have to remain employed by the company for a certain period to be able to keep the shares.
Types of schemes
There are several types of employee share schemes, depending on the company’s particular circumstances. The most common types include:
- Share Option Schemes: This type of scheme allows the employee to buy a certain number of shares in the company at a discounted price. The employee can then keep the shares for future gain, or sell them back to the company.
- Share Ownership Plans: This type of scheme allows employees to own a certain number of the company’s shares, either for free or at a discounted price. The employee can then sell the shares back to the company, or hold them for future gain.
- Employee Share Purchase Plans: This type of scheme allows the employee to buy a certain number of company shares. The shares can then be sold back to the company or kept for future gain.
There are many benefits to setting up an employee share scheme. For the employer, it can be an effective way of incentivizing and retaining employees. For employees, it can be a powerful incentive to stay with the company and help it to reach its goals. Employee share schemes can also be a great way to motivate staff, as they can benefit from any increase in the company’s share price.
However, some potential risks are associated with setting up an employee share scheme. For example, the company’s shares may fall in value, meaning that the employees could lose money. In addition, there may be tax implications for the employee if they make a profit from selling their shares. It is therefore important that employers ensure they are aware of the potential risks associated with employee share schemes before setting one up.
Employee share scheme can be a great way to incentivize and retain staff and are becoming increasingly popular. However, employers and employees must understand the potential risks associated with such schemes before setting one up. By doing so, they can ensure that both the employer and the employee get the most out of the scheme.