Employee share schemes: A small business guide to attracting top talent
The Expert Edit is a content series where we bring in specialists from our trusted Marketplace partners to share their expertise. Each article tackles key challenges faced by small business leaders, offering practical insights from industry specialists to help you navigate the world of HR with confidence.
The battle for top talent is fiercer than ever, and for startups and small businesses, competing against corporate giants with deep pockets can feel like an uphill battle.
But what if there was a way to attract and retain top talent without burning through your limited cash reserves? That’s where employee share schemes come into play.
These schemes allow companies to offer employees a stake in the business, providing a sense of ownership and encouraging long-term commitment. They are not only key in attracting talent; they also ensure employees are invested in the company’s success.
In this guide, you’ll find out how share schemes can help businesses onboard those best for the role and explore additional initiatives to build an engaged winning team.
Why share schemes are a game-changer for startups
Attracting the best talent without high salaries
Large businesses can offer employees high salaries, fancy work benefits and extravagant office perks. Many startups cannot match the competition in this arena, so they have to be more creative when exploring ways to attract talent. Share schemes level the playing field by offering employees potential long-term financial gains.
You are swapping an upfront paycheck for a piece of the company’s future. This is particularly attractive to ambitious candidates who want to grow with a company and believe what they bring to the table can foster success for all.
Encouraging loyalty and retention
High employee turnover is costly – especially, for startups who rely on each team member to play a crucial role. By being offered a stake in the company, key players are vested in the long-term success of the business and are more likely to stick around and contribute to long-term growth.
This is because employees know that their input into the success of the business directly impacts the value of their stake, so they are more likely to stay engaged and motivated. It transforms the business from being a place of work to something they are personally invested in.
Boosting employee motivation and performance
Ownership inherently creates accountability. When employees have a stake in their company, they tend to think and act like business owners. This shift in mindset fosters a culture of responsibility, efficiency and innovation.
A team that cares about the company’s success will work harder to make it happen, leading to a more driven workforce. No longer are employees striving to do their job; they are striving to do their best by the company.
Which share schemes are available to my business?
There are many different ways to set up an employee share scheme in the UK, but some of the most popular ones include:
Enterprise Management Incentive (EMI) schemes
EMI schemes are one of the most tax-efficient ways to offer employees equity at your company. They allow employees to buy shares at a pre-agreed price – often much lower than the company’s future market value.
EMI schemes are also popular because they are the most tax-advantageous to both employees and businesses. However, the eligibility criteria for EMI are more restrictive than other schemes, so many companies are not able to adopt EMI.
Growth shares
Growth shares reward employees based on future increases in company value. Employees receive shares that only gain value once the business reaches a certain valuation threshold – called a hurdle rate – ensuring the reward correlates with company success.
There are no upfront tax liabilities for employees who are granted growth shares, and these can be customised flexibly for each business’ goals. However, these can be more complex to set up and are reliant on the success of the business to gain monetary value.
Unapproved options
If your company doesn’t qualify for EMI schemes, unapproved options are a more flexible alternative. Whilst they don’t have the same tax benefits, they can still offer employees a stake in the business as well as potential financial gains.
Although these are less attractive than EMI, they are a great option for businesses who aren’t EMI-eligible, as they have fewer restrictions on employees who can receive them and are very flexible in terms of structure.
Beyond share schemes: alternative strategies to attract and retain talent
While share schemes are a powerful tool in recruitment and retention, they work best when paired with other initiatives. Here are some approaches to consider.
Flexible working options
A recent survey found that 78% of employees without flexible working options would want them. Offering remote or hybrid working arrangements and flexible hours – or even revamping the office so employees can choose their preferred workspace – will make your business more attractive.
Career growth and development
Startups offer a fast-paced environment, where people are able to take on varied responsibilities and grow their skill sets rapidly. Highlighting this in job descriptions and interviews is a great way to attract ambitious applicants who are looking to boost their knowledge and career.
Strong mission and company culture
More than three-quarters of millennials consider a company’s social and environmental commitments when looking at job prospects. If your startup has a strong mission and attractive values, showcase them. Crafting a compelling vision can be just as powerful as salary.
Diversity and inclusion in hiring practices
Expanding your talent pool by considering candidates from different industries and diverse backgrounds fosters a dynamic company culture, with colleagues who offer a breadth of knowledge and experience. This culture can attract hidden gems who bring fresh perspectives and innovation.
Employee recognition and well-being
Company culture is important to many young professionals, and recognition plays a big part in feeling valued and respected. Regular feedback, celebrating wins and building a thriving and supportive community is key to retaining key employees.
The long-term payoff
Offering equity isn’t just about attracting talent – it’s about building a team that’s invested in the long-term success of your business. Share schemes are a great way to tie employee performance to company growth and ensure everyone is heading in the same direction.
Share schemes alone may not be enough to ensure you retain top talent, so considering ways in which you can make your working environment highly attractive for top employees will create a win-win outcome.
If you’re ready to see for yourself how share schemes can help you build and retain a successful team, Vestd are the equity experts for you. Build the perfect scheme and issue shares with ease on our FCA-regulated platform, with two-way Companies House integration.
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