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Incentives For Key People – Growth Shares

Recruiting and retaining key staff is good for business, and we make no apology for returning to this subject. Share option arrangements and employee ownership trusts are well trodden territory but growth shares less so.

Typically, growth shares are issued by unlisted companies to provide equity to management and key people, including family members. The value of these shares is above a certain opening threshold or hurdle, which must be specified at the outset, and are typically taxed as capital in the hands of the recipient. Although not currently used regularly, growth shares are an alternative to share options and are increasingly being viewed as a solution in certain scenarios.

For example, let’s assume a business value of £15m has been reached and a new employee comes in. The company might well be prepared to incentivise the new employee to get that value to £20m, but less enthused to allow that person access to a share of that value when they played no part in creating that.  Under this particular scenario, using the growth share option, the new employee benefits from only the growth in value.

Growth shares can be an excellent solution but perhaps carry more tax risk than traditional share options given that there is less case law precedent.

Our Employer Solutions team can guide you through the benefits and risks as part of your consideration of motivating your key people. To find out more, or to discuss your circumstances, please contact our Employer Solutions team on [email protected].

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