Employee Share Schemes: Pros and Cons for Employers
Employee share schemes are becoming more popular around the world. If you’re considering setting up such a scheme for your business, it’s important that you’re aware of the potential advantages and disadvantages. Read on for some of the top pros and cons for employers of employee share schemes.
Pros for employers
Owning shares in the company is likely to increase an employee’s motivation to work hard. Unlike their traditionally salaried counterparts, they know that they’ll benefit directly from business growth, and that it’s in their personal interest to contribute all they can to the company’s success. In turn, this means that you will get more productivity from your staff, and your turnover is likely to increase. This, along with other benefits, could potentially vastly outweigh the initial costs of setting up the scheme.
Recruiting the best new talent
Offering an employee share option scheme
is likely to attract more candidates to apply for jobs in your company. In turn, you will have access to the very best talent, allowing you to secure the most promising and dedicated workers to join your team. In addition to attracting new talent, a share scheme will also help you retain your current star performers. In turn, this will reduce staff turnover and increase employee loyalty, therefore, saving you unnecessary recruitment expenses.
Compensate for lower salaries
Many candidates will be prepared to accept a lower salary if they’re offered shares in the company
. For them, the potential to cash out shares in the future will outweigh their requirement for a higher annual rate in the short term. For you as the employer, offering a lower salary can help to relieve cash flow-related pressures. Your members of staff will own shares, but the value of those shares depends on how well the business does and, in part, how hard they work.
Cons for employers
Morale if shares fall
If the share price falls, this could negatively impact staff morale. Knowing that their shares are not worth as much as they were previously is likely to affect employees, and low morale can lead to lower productivity. Additionally, falling share prices may make team members more likely to leave. Your retention rate could reduce, therefore increasing staff turnover.
In the short term, you’ll need to pay out for the share scheme
to be set up and approved. There will also be longer-term expenses related to maintaining the scheme and keeping associated records. While these costs may well be recouped by increased productivity, it’s still a factor to be aware of when weighing up the advantages and disadvantages of employee share schemes
You’ll own fewer shares
It sounds obvious, but it’s important to remember that the more shares you award, the fewer you will have for yourself. In terms of percentage, your ownership of the company will decrease, meaning you could end up with less authority over your business. If you plan to continue being in charge of important decision-making, make sure that you keep hold of at least 75% of the overall company shares.