Structuring your business for after COVID 19: Incentivising staff with shares

When something as life-changing as a global pandemic hits, companies need to ensure that they are ready to weather the storm and hopefully thrive at the end of it. This is a daunting concept however it can be possible.

In order to come back even stronger, businesses may have to reimagine and restructure their business model as they continue to trade. Those who adapt to these difficult circumstances and potential cash flow issues will be the ones to see the most benefit in the future.

One of the key areas businesses should focus on is their employees, as they are a driving force of a business. However, when times are tough financially for a company, it can be difficult to make employees feel valued and motivated. Here, we discuss how businesses can incentivise staff with shares.

Incentivising Staff with Shares 

It is inevitable that many employers may currently be under a lot of financial strain. As a result, they are having to cut costs, stop the payment of bonuses and some are even reducing their staff’s wages. These measures can have a major impact on staff and businesses may be searching for ways to incentivise their staff when cash flow is a problem.

There are options still available for businesses currently in this position. Cash is king so when this is restricted, companies may have to look at non-cash alternatives as part of the employee package. Shares is a common approach that many companies adopt as part of a salary package.

Although the current Coronavirus Job Retention Scheme has now been extended to 31^st October 2020, businesses will benefit from focusing on what their workforce’s terms of employment will look like once they return to normal working patterns.

Although it might not be feasible to incentivise employees through pay rises and bonus packages, offering employees equity in the company instead can be a great alternative in order to show your appreciation and reward their ongoing loyalty.

During times of crisis, it becomes even more essential for companies to retain and incentivise the best employees as this is a key to ensuring the longevity and growth of a company through a difficult and challenging time. Share schemes attract, motivate and help retain staff. By giving employees shares in the company, you are aligning the company’s interests with the employees, encouraging them to think like business owners and put plans into place to help grow the business together. Usually, the same results cannot be achieved by having a bonus scheme in place.

Having a share scheme can also be cost-effective from a business perspective. Of course, this option may not be for everyone and there are inevitably going to be some questions and concerns about this approach. We discuss some of the main concerns below.

Do shares have to be offered to all employees? 

There are ways that allow a company to offer selected employees with shares rather than having to offer shares to all employees. These discretionary share plans allow business owners to decide who can be offered shares.

Benefits of an equity scheme 

It is important that equity schemes and incentives are designed properly so that employees only benefit from this equity when the business performance justifies it. Having an equity scheme can be extremely beneficial for both the employer and employee and can help in the following ways:

• For succession planning
• Rewarding employees for performance
• Retaining high-quality employees
• Motivating employees to be more productive and efficient
• Promoting shared ownership and collaborative culture
• Promote business growth

Will current shareholders’ shares be diluted? 

Share incentives can be specifically structured to avoid shareholder dilution. Through the use of “growth shares” for example, the current value of existing shares will be protected by allowing employee shareholders to only share in a proportion of future growth above the current value.

Share schemes have received Government support because they help engage employees and give them a larger sense of responsibility and involvement in the business. They can also benefit the wider economy through business growth and increased productivity.

Does having a lot of shareholders cause a problem? 

A properly designed scheme should avoid any unwanted impact on existing shareholders. Before a company offers shares to employees they will need to manage the following topics carefully:

• Dividends
• Voting
• Ensure employees leaving the business cannot continue to have a stake in the business
• Ensure existing shareholders can control who can receive employee shares

As long as these issues are planned out in advance, using an employee share scheme can benefit both the employer and employee and help push the business forward, which is imperative during uncertain times.

Although the current Coronavirus Job Retention Scheme has now been extended to 31^st October 2020, businesses will benefit from focusing on what their workforce’s terms of employment will look like once they return to normal working patterns.

The team at Wright Vigar have extensive knowledge and experience in helping advise companies and help them decided what strategies they should put in place to incentivise their staff and structure their company during these difficult times. Our experts can help you design and deliver the appropriate incentivisation.

If you have any questions or want to know more, then please get in touch with a member of the Wright Vigar team. Email website@wrightvigar.co.uk