The competition for good people is heating up. Salaries are increasing, and staff appear to be more willing to chop and change jobs whether looking for more money, a step up or simply a change in direction. Never has the war for talent been so keenly felt.
That is why it is so important to look at the measures you can take to motivate and incentivise your team whilst making your business attractive to those looking for their next role.
In this article I will touch on some of the different ways you and your business can achieve this, looking at traditional economic and non-financial incentives.
Financial incentives
There are three common financial incentives businesses typically turn to when looking to motivate and reward their staff:
- Direct share ownership.
- Share option schemes.
- Growth shares.
Direct share ownership can sound attractive, with key employees owning a stake in the business. A short-term incentive in the shape of annual dividends together with a longer-term incentive based on future growth sounds great.
However, consideration needs to be given to what happens if that individual were to leave the business? Is there an option to buy back those shares and what happens if that member of staff were to leave on unfavourable terms?
There are also Income Tax and National Insurance considerations for both the employer and employee to consider.
Share option schemes are a more common way of allowing employees to own a stake in the business. They allow staff to purchase shares in the business at a future date or when certain conditions are met. There are various HMRC-backed schemes – such as Enterprise Management Incentives – that offer favourable tax treatment.
Growth shares come in many different forms but essentially allow staff to benefit from the future growth of the business that they contribute towards, whilst continue allowing the business owner to benefit from the hard work and investment they have made in getting a business to that point. Again, there are tax considerations for both the employer and employee that will need to be considered.
Non-financial incentives
The Covid pandemic and new generations entering the workplace has started a shift in what people want from their employer and workplace. In many instances, the pay cheque alone is not enough. People increasingly want their voices heard.
Two common approaches are employee collectives and board representation.
An employee collective gives staff a voice at the top table over the operational side of the business, either in a formal or informal way. The aim is to create a sense of fairness and a degree of control over aspects of the business. Structures will vary but can include employees collectively owning shares in the business, thus a voice in annual shareholder meetings, through to representation on the Board.
Business owners will need to give careful consideration to their own long term aims before implementing any such arrangement. Such arrangements can deter future buyers should an exit be on the cards.
Employee Ownership Trusts
For a business owner that is looking to exit and reward staff, an Employee Ownership Trust (EOT) may be an option to consider. As the name suggests, shares of the business are transferred into a trust owned by the employees of the business. It is a structure used famously by The John Lewis Partnership.
There are attractive capital gains tax reliefs for business owners exiting their business by way of an EOT, with the business owner able to retain some stake in the business. Employees are rewarded with ownership of the business, and who are often best placed to see it continue to grow and thrive.
There are, however, strict criteria that need to be followed that may not make it an appropriate exit for all business owners.
As always, advice before taking action is recommended. Please get in touch with James Johnson on the details below if you would like to discuss anything related to the content of this article.
