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Thinking laterally about pay rises

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1 December 2009

In tough times the pain has to be shared and there are many companies deciding that pay rises are off the agenda this year.  Not so good for employees who are finding matters tight.  Employers may suffer too as these workers will have itchy feet when there is the opportunity for them to move jobs.

So how do you reward employees and motivate them if budgets are tight?  Share or share options schemes or shadow shares schemes may be ways in which to tackle this issue. 

If the shareholders of a company are prepared for their ownership to be diluted, shares can be given to employees.  However, the employees will be taxed on the value of those shares.  As this is at the very time they have not had a pay rise it may not be the best plan! 

Share options
A better solution may be to give workers the opportunity to buy shares in the future.  There are many types of share option schemes but the most attractive are those that are HMRC approved.  These are popular as they can allow the shares to be purchased without a tax charge arising and at the same time the company can sometimes get a tax relief for some of the value received by the employees.  A real win-win scenario.  Share options are particularly appropriate if it is expected that the company will grow in value and be sold or floated in the future.

Shadow share / profit schemes
For those companies, partnerships or other entities where shares or share options are not wanted a shadow scheme could be considered.  This is basically a deferred bonus scheme where the level of payment is linked into and contingent upon future profitability and / or growth in value of the enterprise.  The idea is to provide a golden handcuff.

The key is that if employees are given a stake in the future performance of their employer they may contribute that little bit more to its success.

For more information please contact:

Ruth Dooley
01452 634800