Capital gains
Why not get your people involved in the capital of the company?
The UK-based RM2 Partnership, which specialises in setting up employee share ownership and share option plans, is reporting significant interest in the take-up of such plans – possibly prompted by the upcoming new 50% tax in Britain, but also as companies look for new ways of tying down staff in a way that is tax-efficient for both sides.
“If you have ‘rainmakers’ in the company, people that drive the company, they really should be locked in with equity-based rewards because their aspirations are then aligned to those of the shareholders, and they will be receiving that slice of reward in a capital gains tax environment,” says RM2 director Geoffrey Bond.
“Share option schemes are very popular for encouraging staff retention and for managers and executives would definitely be a preferred part of overall remuneration.”
RM2 reports that many companies are using such schemes as a softener for salary freezes or, in some cases, even salary reductions. However, he warned, companies must be careful to control the level of equity that the employees hold. “You don’t want the tail wagging the dog.”
Most plans have a restriction that obliges any employee leaving the company to sell their shares back to the company, he says.
“A lot of companies can come unstuck – they ask their accountants to put plans in place and all the legal issues are not addressed. All is OK until they are trying to sell the company in seven years’ time, and they have a shareholder in Queensland who won’t sell his shares. You must make sure that the company is never in a vulnerable situation.”
