What to give my employees for christmas?
Data from HMRC shows us that more and more startups now offering options to key employees as a method to motivate, recruit and retain talent.
So we were thinking at SeedLegals what can be a great gift for your most talented employees, well, paying them a bonus is definitely nice, also offering them holidays to Australia where they can escape the weather, but how about this…. Granting them share options in your startup?
You may think why do I need that, well this is why we decided to write this article.
Let’s start from the beginning.
Is it that common to grant options to employees in the UK?
Total number of companies where employees have been granted options or been awarded shares has generally been rising since 2009-10, the data shows that there are 13,330 companies operating Employee Share Schemes in the UK in 2017-2018 (48% increase since 2007-08). The total increase is driven by the large rise in the number of companies granting EMI options.
How does granting options lead to motivation, recruitment and retention?
Thanks to the “Ownership Effect”. Supported by a host of research, it shows that when someone owns even a small piece of equity (shares) in a business, their relationship with that business changes: they bring more to the table, emotionally, psychologically and demonstrate enhanced commitment.
But first back to basics - what actually is an EMI option scheme? There are several Options plan available, but the EMI (Enterprise Management Incentives) Share Option Scheme is by far the most generous mechanism with which to award employees with equity in your company, and the most popular one (with 84% of the companies offering it). Furthermore, the data shows that 98% of companies offering a scheme, only offer EMI.
Instead of a share, where someone owns a part of the business outright - an option is the right to buy a share at a fixed price.
Instead of giving traditional shares to members of the team that makes them susceptible to a large tax bill which worse case worse may result in them selling their shares to cover the fee which would be dampener on their Christmas.
This is why we recommend EMI options as they do not attract any tax when they are granted or exercised, but only when they are sold so normally when there is an exit or an IPO . Moreover, when they are sold the employees will only pay 10% CGT on any profits that they make from the EMI options! It's the best mething give equity to your co-founders and team
You may be thinking the following now:
- Options cost more than bonuses
- Option Schemes are expensive
- It’s going to take a lot of time, admin and paperwork to get set up.
Whereas it used to cost between £2500 - £5,000 to set up an option scheme, (with schemes for more than 50 employees costing £10,000 - £20,000), SeedLegals new EMI service lets companies set up an EMI Option Scheme online for £1500 flat fee or if you have recently completed a funding round and wish for your employees to benefit from the reduced valuation with our valuation tool, £1000.
Setting up an EMI Option Scheme used to be a complex and time-consuming process, with months spent creating the paperwork with lawyers and accountants. Technology and automation has now changed that for good. Now, in just a few clicks (17 to be exact), anyone can generate the option scheme paperwork and issue equity to their team.
What’s stopping you from granting options this Christmas ?
As with all SeedLegals products our team is on hand to help every step of the way. Keen to help you action this before the end of the year, it would be a great Christmas gift to members of your team
Any questions, just shout!