Incentive schemes that minimise bottom line impact

Incentive schemes that minimise bottom line impact

At SI Partners, we work with many small to medium sized creative businesses that are searching for ways to incentivise and reward their most deserving and business-critical employees without adding significant amounts to the salary bill. In our experience, Enterprise Management Incentive (EMI) schemes provide a cost effective and tax efficient alternative to incentivising key employees that avoid a hefty up-front financial investment.

If structured correctly, EMI schemes allow options to be granted to qualifying employees, without giving rise to income tax or NI charges.

EMIs offer high value incentives and rewards for employees, providing a good option for small, talent-based businesses looking to engage their people or release equity whilst retaining control. They are a highly tax efficient way to offer employees monetary rewards, but more than that, they offer employees a way to directly share in the success of the business. 

An EMI scheme can embed organisational culture into every aspect of the business. Employees feel more valued because they are being offered a stake in the business and receiving a lucrative potential capital gain. This reward and recognition comes with minimal immediate direct cash impact on the business.  The heightened sense of value and ownership that may be experienced by employees through EMIs can increase productivity, improve performance, and increase retention of key talent within the second-tier management – a particularly important aspect to have in place if you plan to sell the business in future.  It is also possible to build in performance provisions to incentivise staff further, structuring the scheme so that the employee would receive further share options should they meet criteria that helps the business grow, directly aligning employees in key roles to growth and achieving shareholder objectives. The key to all successful schemes is to keep them simple and focus on driving the right behaviours.

EMI schemes provide a great way to incentivise while mitigating risk to the business, as in an ‘Exit Only’ scenario, the share options lapse if the employee leaves the business prior to a sale. Furthermore, it is possible to agree the market value of the shares with HMRC in advance of issue so that employees can have certainty about their personal tax situation.  

Paul Allen is a Partner at SI Partners, a global M&A and consultancy firm with a passion for creative and technology businesses. Paul advises shareholders on business process improvement, growth strategies and commercial behaviour change, helping businesses to achieve their full potential.