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Guide to rewarding employees with shares

Justin Rix Justin Rix

Research shows companies that reward employees with shares are more productive and more profitable. Here are three quick guides to getting share incentivisation and equity reward right.

Giving your employees a stake in the company can be an effective way of engaging them and aligning their interests with those of the business. The MacLeod Review of Employee Engagement, commissioned by the Government, determined that organisations in the top quartile for employee engagement showed 18% better productivity, a 12% improvement in customer ratings, a 37% reduction in absenteeism, as well as being 16% more profitable than others.

When employees understand the impact of their personal performance on the value of the business, ownership of company shares can motivate them to be more productive and innovative, as this will increase the financial value of the capital they hold in the business. This in turn will help a business to achieve its growth aspirations.

There are additional benefits to implementing a share incentivisation scheme. If the right arrangement is chosen, shares need not be expensive for employees to acquire, while cash which would otherwise be tied up in higher salaries or bonuses can be made available to the business. When an employee sells their shares, any growth in their value will be subject to the lower capital gains tax rates (10%, 18% or 28%) as opposed to income tax and National Insurance Contribution (NIC) rates of up to 47%. In some circumstances, the growth in value may even be completely tax-free. Furthermore, there is also an employer NIC saving to the company at 13.8%.

We’ve put together the following guides for further help and information on rewarding your employees with shares.