While many employees look forward to a year-end bonus, some employers take a different approach by offering shares to attract, retain, and motivate their teams during the year-end and year-start periods.
Employee share schemes – also called share purchase plans, share options, or equity schemes – allow employees to own a stake in the company they work for.
These programs often allow employees to buy shares at a discounted price, providing a tangible way to share in the company’s success.
Not only can these schemes serve as a meaningful reward for hard work, but they also align employee and employer interests, fostering long-term commitment.
However, as with any financial decision, it’s important to consider the benefits and risks before joining a scheme.
What Are Employee Share Schemes?
Employee share schemes are designed to allow employees to own a stake in their company. By offering shares at a discounted price, companies create a sense of shared success and loyalty among their workforce. For example, Apple offers employees the opportunity to become shareholders by providing a 15% discount on Apple shares.
These schemes are particularly appealing as they often align the interests of employees and employers, fostering long-term commitment and productivity.
Payment Options for Shares
How you pay for shares under an employee share scheme can vary depending on the company and the scheme’s terms. Common payment methods include:
- Salary Sacrifice: Deducting payments for shares from your salary over a set period (e.g., six months).
- Dividends: Using dividends received on shares to cover the cost of future shares.
- Employer Loan: Taking out a loan provided by your employer to purchase shares.
- Full Payment Upfront: Paying the total amount for the shares at the time of purchase.
In some cases, shares may be offered as a performance bonus or as part of your remuneration package instead of a higher salary. Large companies may provide “ordinary shares,” granting an equity investment, whereas smaller companies might limit benefits to dividend payments.
Key Considerations Before Joining a Scheme
Each employee share scheme is unique, and the terms and conditions can vary significantly. Before participating, carefully review the following aspects:
- Purchase and Sale Terms: Make sure you understand when you can buy or sell shares under the scheme.
- Dividend Payments: Check whether you are eligible to receive dividend payments and understand how they will be distributed.
- Impact of Leaving the Company: Determine what happens to your shares if you leave your job.
- Tax Implications: Be aware of any tax benefits or obligations associated with the scheme.
Benefits of Employee Share Schemes
- Employee Rewards: Provide employees with a tangible reward for their contributions.
- Retention Incentive: Encourages employees to remain with the company and contribute to its long-term success.
- Shared Success: Creates a sense of ownership and alignment between employees and the company’s goals.
Employee share schemes can be a valuable opportunity for employees to share in their company’s growth and success. However, it’s essential to understand the specific terms of the scheme and how they align with your financial goals and circumstances.
Always seek professional advice if you’re uncertain about the potential benefits and risks. By carefully considering all factors, you can make an informed decision about whether an employee share scheme is right for you.
Disclaimer
The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.