Get the Best from Those Employee Share Schemes

Article excerpt

THE number of employee share option schemes in the UK has increased dramatically over the past 30 years. This trend is set to continue with the introduction in the Finance Act 2000 of two new types of plan, bringing the number of approved schemes to five.

The new plans have been introduced as part of a government drive to encourage the public to save for their own retirement. Unfortunately, some companies regard share plans as just another type of employee benefit. But this should not be the case. London-based incentive specialist AON Consulting says research demonstrates that share options can help employee attitudes to work and their motivation levels. Here we outline the schemes available and the pros and cons of each.

What approved schemes are available?

There are five common types - share options, save as you earn (Saye), profit sharing, enterprise management incentive (Emi) and approved all-employee share ownership plan (Aesop).

Why so many?

They are all designed for different circumstances. Share options are granted at market value with the hope that the shares will increase over the next three to 10 years - the period within which they must be exercised to obtain tax benefits. No employee can hold more than [pound]30,000 worth.

With Saye, employees save between [pound]5 and [pound]250 per month for three or seven years to fund the purchase of shares. Options can be granted at a discount of up to 20% of market value. The money saved does not necessarily have to be used to buy shares - it can be taken in cash.

Profit sharing allows employees to be given shares up to above [pound]3,000 or 10% of salary in lieu of a bonus, subject to an overall maximum of [pound]8,000 a year. Such schemes will effectively end in December 2002 having been replaced by Aesops. Shares must be held at least two years.

Emi is aimed at small companies operating a qualifying trade, mainly in the UK, and with gross assets of less than [pound]15m. Favoured share options can be granted in lieu of salary up to a maximum of [pound]100,000 per employee.

An Aesop allows an employee to be given up to [pound]3,000 worth of shares each year. Additionally, they can buy up to [pound]1,500 worth of shares and the employer can give free matching shares.

Are all these schemes treated the same way for tax purposes?

No. …