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Employee Incentives

Our client is a manufacturing supply company in the East of Scotland, wholly owned by the managing director and his wife. The owners wished to incentivise their key people by rewarding them according to the success of the company but were reluctant to give away equity.

How we helped our client
EQ’s specialist team met with the managing director and his wife to establish their parameters and it became clear that, whilst they wished to provide a platform for motivating the employees, they were unwilling to relinquish 100% control.

EQ’s solution was to recommend a shadow share scheme whereby the key team received additional reward as if they held shares but with no actual shareholding. For the recipient, the receipt of the ‘dividend’ was taxed under PAYE as a normal employment bonus. The scheme created an employment law obligation for the employer that, in the event of certain performance criteria being met and/or the owners paying a dividend, there was an obligation to pay the bonus to the key staff.

Whilst not necessarily tax efficient, the scheme allowed a mechanism whereby key staff felt rewarded in line with the success of the company but the owners did not actually have to give away ownership. The right to receive a bonus was also extended to a right to receive a pro rata bonus in the event of a company sale. However, if an employee chose to leave their employment, their right to receive a bonus left with them.

The outcome is a company with a highly engaged and committed team which is incentivised to push the company forward and which has, since the scheme’s implementation, seen an increase in productivity and profitability.

For more information or to discuss further, please contact the Employer Solutions Taxperts.

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