Wednesday, June 19, 2024

The Pros and Cons of Employee Share Schemes Within a Business

Wondering if setting up employee share schemes in your business is right for you? We explore the pros and cons in this article…

In a post-Covid world, businesses are having to make their companies ever more appealing to workers who now have far more opportunity than ever before. These days, if you don’t offer cash incentives and benefits, like employee share schemes, you may now be at a loss.

As a business owner, it certainly might seem as though workers are all take, take, take, with little reward for yourself. However, the truth is that many employees simply want to be valued and take pride in what they do. Heeding this call can have amazing benefits for your business.

This is why it’s important to know how different employee benefits can actually improve things for you – the business owner. After all, a happy workforce is proven to be more efficient and productive! So, perhaps employee share schemes are a potential employee benefit for you to explore. To find out if it may be, we’ll delve more into the pros and cons, here…

What is an Employee Share Scheme?

According to vestd, an employee share scheme is “a way of sharing company ownership with your team. You can reward one or more key people with equity, or all of your employees… You can also distribute shares to non-employees, such as consultants and advisors.”

The UK government website shows the various different ways you can set up employee share schemes within your business. They are as follows:

  • Share Incentive Plans (SIPs): where the shares are held in a trust and, if they are held for over five years, are tax-free.
  • Save As You Earn (SAYE): where you can buy shares for a fixed price, save up to £500 a month and, at the end of your savings contract (3 or 5 years), use these savings to buy more shares.
  • Company Share Option Plan: where you can buy up £30,000 of company shares, at a price that is no less than the market value at that time.
  • Enterprise Management Incentives (EMIs): if the company is worth £30 million or less, your company can grant you share options up to £250,000 of value in a 3-year period, with no tax unless you are offered a discount on the market price.

Because your employees become shareholder, this means they have the ability to join in on overarching decisions for the company. For more information on what each of the above options entails, you can find a breakdown of them all using the above GOV.UK link.

The Pros of Employee Share Schemes

There are various pros to implementing employee share schemes into your business. Some of these are as follows:

Attracting and Retaining Talent

As we mentioned previously, the job market is very much an employee’s market at the moment, which means businesses must do everything they can to make themselves attractive to top talent.

In June 2022, there were just 1,030 employee owned companies in the UK. This just goes to show that any companies who adopt this way of doing things will no doubt be set apart from the rest.

Not only will this help to attract amazing potential employees, but it’ll also encourage current talent to remain with you.

Tax Benefits

As we’ve seen above, employee share schemes have tax benefits for both the employee and employer. For example, if you want to set up an employee ownership trust, no capital gains tax is required to be paid if the majority of shares in the company are sold to the EOT.

Once this is the case, employees can earn up to £3,600 in bonuses, free from income tax. These benefits act as an incentive to get on board.

Improve Productivity

All of the above has numerous monetary benefits for employees, but what about your company? Well, getting your employees involved in something like this means that, not only do they feel valued, but they truly feel like part of something that they have control over. In fact, the work that they do every day has an actual impact on the money they can earn.

By incentivising employees through these monetary means, as well as a collective goal, productivity will no doubt soar. The stats speak for themselves.

The Cons of Employee Share Schemes

In order for us to take a balanced view of the argument, let’s also take a look at some of the cons of employee ownership. Take a look…

Expensive to Set Up

Although less expensive than they used to be to set up – thanks to government tax incentives – they still bear an extra cost for companies at the start. Of course, these costs are only short-term, and it is likely to pay you back in kind in future.

That said, if you aren’t able to sacrifice these costs now, it may be best to seek the advice of a Financial Advisor to see if it’s worth trying.

Losing Control

As a business owner, you’ll no doubt want to maintain control of the business you worked so hard to build. With employee share schemes – or any shareholder schemes for that matter – if you no longer own majority voting shares of the company, then you will lose an element of ownership and control over it.

For some, this is not something that appeals to them. In this case, employee ownership may be an option for your retirement; selling your shares to your employees as your final goodbye.


The truth is that, if you company doesn’t profit, then your employees won’t reap the rewards of this scheme, and therefore may leave because of it. If they are promised something they don’t actually receive, this could have detrimental effects on the business.

One plus side is that most employee ownership schemes are protected in that, if prices of the shares drop, employee shares won’t drop. However, they won’t increase either.

Is Employee Ownership for You?

As you can see, there are various pros and cons of employee share schemes to know about. It’s important that you do your research before diving into something like this. Seeking the advice of a Financial Advisor or specialist employee ownership expert is a good place to start.

What do you think of employee ownership for businesses?

Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained employee ownership professional. Be sure to consult an employee ownership professional if you’re seeking advice about implementing an employee share scheme in your business. We are not liable for risks or issues associated with using or acting upon the information on this site.

Sam Allcock
Sam Allcock
Sam heads up Cheshire-based PR Fire, an online platform that has already helped over 10,000 businesses to grab widespread media coverage on their news at an extremely accessible price point.

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