How do I ensure my staff remain loyal?
QUESTION: A senior manager has recently left my company to work for one of our competitors for an increased salary package. I have a number of other key staff who are vital to the success of my business and I don't want to lose them also. We are currently expanding the business and have a significant capital investment plan in progress so it is a difficult period for cash flow. I can't increase staff salaries or offer cash bonuses at this time. Are there any other cost effective ways of creating loyalty and securing the long term services of my senior managers?
ANSWER: Key staff know their value and if companies only offer standard remuneration packages it is often difficult to retain those employees who are important to the business. One way of involving employees in the progress of a business is to offer them a range of additional rewards. Not only can such rewards help to attract and retain experienced or suitably qualified members of staff, they can also provide a boost to productivity, improve workforce morale and often result in significant tax savings.
The Enterprise Management Incentive Scheme is a share scheme which enables many companies to grant eligible employees the opportunity to acquire shares in their employing company on advantageous terms. From an employee's perspective, the potential to share in the future capital growth of their employing company is a powerful incentive to remain focused on the goals and targets of the business and a chance to share in the rewards of their own efforts. For the employer, the alignment of the employee's interests with those of the shareholders can only have a positive impact on employee motivation and loyalty also.
An employer can select whichever employees they want to join the scheme provided the employee works for at least twenty five hours a week and does not already own more than thirty percent of the equity in the business. Great care must be taken to ensure that the company also fulfils the various conditions for the scheme. If both the employee and employer conditions are fulfilled the tax benefits available under the EMI legislation are extremely generous, with no Income Tax or National Insurance Contributions due either at the date of grant or on exercise of the options. Also, the share options generally only give rise to Capital Gains Tax when the shares are eventually sold, allowing employees to benefit from capital gains tax rates, which can be as low as 10 per cent rather than income tax and national insurance rates on salary increases which are often in excess of 50 per cent.
When introducing a share option scheme, there are important considerations an employer should take into account. The scheme should have well-defined business objectives such as improving teamwork or securing the loyalty of key staff and it should be affordable and proportionate to the firm's other benefits. The share scheme needs to be meaningful and valuable to employees, and while encouraging better levels of performance, it should not put their targets beyond realistic reach.
Employees need to be consulted so that the benefits can be properly communicated and the scheme ought to be measured for its results and reviewed at regular intervals. Before proceeding with the establishment of a staff incentive share scheme, such as the EMI scheme, professional advice should be sought to ensure that employment law and tax law is being adhered to and that the appropriate disclosures are made to HM Revenue & Customs.
:: Janette Burns (firstname.lastname@example.org) is associate director at PKFFPM (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither The Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.