Motivate Employees in a Cost-Effective Manner – Introducing Employee Share Schemes

Do you need to motivate, retain and attract quality staff on a budget? Here’s how…

Are you looking for a cost-effective way to motivate employees? We understand business capital can be tight and you just don’t have the budget to pay premium salaries. We also know that it can be hard to motivate, retain and attract quality staff with financial constraints. But what if we told you there is a way of obtaining strong, talented staff without throwing money at them?

Well, there is.

An employee shares scheme could be the answer!

Employee share schemes give employees shares in the company they work for, or the opportunity to buy shares in the company.

How employee share schemes work

Share purchase plans offer eligible employees the chance to purchase shares, sometimes through a loan from their employer. The shares are often paid for through salary sacrifice over a set period (for example, six months), or by using the dividends received on the shares. Some share purchase plans also allow employees to pay for the shares in full, up front.

Employee share schemes are a way of attracting, retaining and motivating staff as they align employees’ interests with shareholders’ interests.

Benefits to employees:

  • Financial rewards, linked to individual and organizational performance or a long-term savings and ownership structure;
  • An increased sense of ownership and association with the business;
  • Better partnership and communication with management; and
  • Heightened engagement and involvement with the business, presenting the opportunity to influence decisions, directions and corporate plans for the business.
  • There may also be tax benefits but this will depend on the employee’s financial situation and the unique features of the share scheme.

Benefits to employers:

  • Align employees interests with those of shareholders;
  • Compensate for lower salaries and relieve pressure on cash flow;
  • Recruit or retain key employees;
  • Increase customer loyalty;
  • Increase shareholder value;
  • Motivate employees to become more productive;
  • Improve the communication between employee and managers and increase cooperation; and
  •  Increase loyalty and reduce staff turnover.

Disadvantages for employees:

  • There are often limitations on when employees can buy, sell and access shares through their company’s share scheme.
  • There may only be an annual window during which shares can be bought or sold. Employees may also have to get permission from the company before buying or selling their shares.
  • If the employee is paying back the cost of the shares over a period of time, they do not have the right to sell them until they have been paid for.
  • Even if the shares have been paid for, some companies may insist that employees give back their shares when they leave, or sell them at the current market price, even if that price is less than what they paid.
  • Some share packages come with restrictions, where employees only receive part or all of the shares if certain performance targets are met, and they remain with the company for a certain number of years.
  • Employees run the risk of their share price decreasing which will impact the value of the holding for an employee.

Disadvantages for employers:

  • The employer’s share ownership can be diluted. For example, as more shares are issued, each share you own becomes a smaller percentage of the company.
  • There are short-term administration costs of drawing up and getting a scheme approved, plus longer-term costs of managing the scheme and keeping records.
  • Share price falls may affect morale and retention — particularly for share option schemes.

Do you want to know what an employee share scheme could do for your business? Please don’t hesitate to contact our experienced Newcastle commercial lawyers at Butlers Business and Law on (02) 4929 7002 or fill out an enquiry form on our website.