Retaining key employees and growing profits

Business deal

How many business owners do you know who want to:

  • Develop plans to retain key staff;
  • Grow profits;
  • Engage key staff in a discussion about enterprise value; and
  • Develop succession plans?

Considering these are key issues for the majority of businesses, you will likely know a lot of them.

Which means you may also know many businesses that would benefit from a discussion about introducing an employee share scheme (ESS) into their business.

ESSs are an uncomplicated and cost effective solution to:

  • Attract and retain key employees;
  • Share financial success with employees; and
  • Grow enterprise value.

They are also an opportunity for you to have a relevant conversation with your clients about their broader business needs and solutions, including the current value of their business.

Example: ESS in action

Mary is one of Peter’s key employees. He knows that if he does not show her she is valued, she may be poached by a competitor company; however, Peter’s business is in a growth phase and all his surplus cash is being reinvested to grow value.

Peter offers Mary share options (rather than a cash bonus) as part of her salary package. It does not cost Peter or Mary anything to issue the options. In 2 years’ time, should Mary still be working for Peter, she can convert those options to shares by paying a strike price – being the price of the shares at the time the options were issued. Peter expects a big uplift in business value as he drives the enterprise towards an exit plan, meaning Mary will benefit when purchasing her shares at the strike price.

Mary  will not be taxed immediately on her gain, as Peter’s company qualifies as a ‘start up’ as per the ESS rules.

In three years’ time, with the invested efforts of Mary to grow company profits and value, Peter is offered an attractive sale price for the business. Mary also benefits from this sale as a company shareholder.

Start the conversation with your clients

How many would welcome a call from you – their key adviser – to talk about these benefits to their business?

This short fact sheet outlines some of the benefits of employee share schemes, as well as the tax discounts available. You are welcome to share this with your clients to help get the conversation started.

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