Introduction
Share Option Schemes can be an effective way of rewarding and incentivising staff without affecting the business’s cashflow in the way that, say, increasing salaries or giving bonuses would. Such schemes give employees options to purchase shares in the employer company at a pre-determined price. The idea is that the employee will have the choice of whether to buy or not when the time comes for exercising the option. The decision will normally be based upon the value of shares at the time for exercising the option. That is, if the value is less than the exercise price, the employee is not likely to want to purchase but if the value is more, he/she will probably purchase and make a profit. Therefore, no risk to the employee.
Employees/Employer
When granted options, employees are often incentivised and motivated because they feel a part owner and will share in the company’s success.
The employer can impose performance criteria before the share options may be exercised and so will have comfort in the fact that the employee will be working towards the company’s goals in order to exercise the options.
Subject to meeting certain criteria set out by Her Majesty’s Revenue & Customs, schemes often offer significant tax advantages.
Types of Scheme
Share Option schemes vary and the Government recognises and sponsors such schemes as Share Incentive Plans, Save As You Earn Schemes and Enterprise Management Incentive Schemes.
Companies who are looking to develop, grow and retain key staff in the future might want to consider creating a share option scheme.
Claric is able to draft all legal documentation relating to Share Option Schemes.
This should not be relied upon for legal advice. If you would like any further information or advice please email richard@clariclegal.co.uk.
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