Handing out shares to staff? Be ready for a dog’s dinner
“Henrietta Morrison has spent two years and about £150,000 trying to set up a share scheme for staff at Lily’s Kitchen, the posh pet-food business she started in 2008. But, so far, granting equity to her 72-strong workforce has proved difficult…
…Some share plans allow staff to hold equity immediately, which can mean workers have voting rights and receive updates on the company’s performance.
One of the more popular schemes, along with EMI, is the Share Incentive Plan (SIP), which lets company bosses grant free shares worth up to £3,600 to each worker a year. A recent ProShare report showed that, on average, bosses using this method tend to hand out much less: just £714 to each employee annually.
Under SIP, workers are immediate shareholders and pay no income tax or national insurance on shares that are held for at least five years…
…But there are other ways to incentivise employees. “People jump to the conclusion that they must give share options,” said Caroline Sherrington, senior counsel at Ignition Law, which has advised start-up bosses. As a founder, “there are other ways to hold on to as much [equity] as possible. You can give staff bonuses or commission,” said Sherrington.”
This article was originally published in The Sunday Times and can be read here.