COMPLIANCE
Equity incentives and payroll
David Yewdall provides an overview of considerations for businesses who are considering the option of offering equity incentives to their staff
A s well as cash remuneration paid through salary / bonuses and many benefits in kind (such as medical insurance or cars), an increasing number of companies are now offering equity incentives to employees. The reasons behind this could depend on the organisation’s people strategy; perhaps the business is in a place where they need to incentivise performance, to lower staff turnover or to motivate people by providing
a feeling of 'ownership' throughout, linking the results of their hard work directly to their reward and success. With the need to compete over talent, as well as the cost savings involved for both the employee and employer, there’s an an advantage to having these incentives in place within an organisation. There’s a distinct difference, however, between an employee holding ‘shares’ as opposed to ‘share options’. Holding shares directly means an employee
will be regarded as a shareholder, whereas holding a share option means that, subject to certain conditions, at some point in the future, that employee will be able to acquire shares at a pre-agreed price. There’s always the possibility that this may not happen, of course, if certain conditions aren’t met. While holding options may not therefore sound as appetising as holding direct equity, there can be a significant tax advantage involved.
| Professional in Payroll, Pensions and Reward | December 2023 - January 2024 | Issue 96 26
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