Member Article

A shared future – 1 in 4 SMEs in the UK now share ownership with their employees

The pandemic has made many businesses re-evaluate the way they work. In a survey of 500 SMEs, by Vestd, nearly half (48%) said that COVID-19 had made them rethink the way they operate.

As a result, one in four SMEs now offer shared ownership with their employees. Companies in the North East of England are the most likely to motivate the team with equity, followed by London, the East of England, the North West and Northern Ireland. The South East of England had the lowest adoption levels of employee share schemes.

Sectors where shared ownership is most prevalent include automotive, finance and banking, food and drink, hospitality and leisure and insurance. There seemed to be a stark absence of shared equity among the construction industry and health and pharmaceutical sectors.

Ifty Nasir, CEO and co-founder of the share scheme and equity management platform, Vestd, said: “COVID-19 has made us all re-evaluate our lives and think about what really matters to us, both at home and at work. Many people will be looking at ways they can proactively make a difference in their company, while becoming a more integral part. Employers, meanwhile, will be searching for methods of engaging their talent, without breaking the bank – especially as so many (63%) have said they won’t be giving pay rises in the coming 12 months.

“Introducing a shared equity scheme is a progressive move forward. It has proven results to increase performance, company cash flow, loyalty and company culture.”

However, there is a lot of confusion when it comes to shared equity, and is cited as one of the main reasons why companies choose not to offer it.

To clarify, Ifty has summarised the most popular options amongst SMEs today:

1. EMI Option Schemes (used by 41% of SMEs who offer schemes) – the most tax efficient of all, with recipients paying just 10% CGT on any gains. It gets better: the company can offset both the cost of the scheme and the tax benefits achieved by employees against its tax liability. EMI schemes allow employers to set various conditions to govern the release of equity, such as time-based, or performance milestones. The vesting schedule can also be customised in various different ways.

2. Ordinary Schemes (used by 35%) – These get people in the game with immediate effect, unlike options, which are subject to a vesting period of typically three or four years.

3. Growth Schemes (used by 31%) – This is an excellent approach for founders who have built up some existing value in their company. Recipients only share in the capital growth of the business from the point at which the shares are issued. Growth shares can be given to anyone, and conditions can be attached. These shares also limit the risk of the recipient having to pay income tax on receipt of the equity.

4. Share Incentive Plan - SIP (used by 23%) – A tax efficient, all employee plan which provides companies with the flexibility to tailor the plan to meet their business needs.

5. Unapproved Options (used by 22%) – These provide the most flexibility and are the easiest to set up. They do not require any approval from HMRC and can be given to anyone, but are not as tax efficient as EMI schemes.

6. Save as you Earn - SAYE (used by 18%) – a monthly saving scheme that gives you a tax-free bonus and an option to buy shares in your company at the end of the scheme.

Vestd recently unveiled their latest Employee Equity Trends Report which found that 63% of SMEs won’t be giving pay rises in the coming year, with 15% actually asking their teams to take pay cuts.

This was posted in Bdaily's Members' News section by Katherine Adams .