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An employee share plan can help recruit and retain key staff

Share schemes can be tailored to needs of a business and tax profile of the managers

The ability to recruit and retain staff depends very much on a third “r” – how you reward them. An employee share incentive plan can be a good way of doing just that.

"In today's competitive environment it is important that a business is managed by a team committed to delivering results, growing the business and making it a success. Whether a business is a start-up looking to recruit a new executive or an established company seeking to retain its key people, an employee share incentive plan can be a cost-effective and tax-efficient way of meeting those objectives," says Ken Killoran, tax director at Mazars.

One of the main benefits of employee share incentive schemes over cash-only remuneration packages is the exemption from employer PRSI on employee share awards, resulting in a saving for the employer of 10.75 per cent.

An employee share incentive arrangement can come in many forms. “At its simplest it is a way in which employers can incentivise employees to improve their performance in a manner which contributes to the growth and profitability of the business, and, in return, the employee can share in the success by receiving shares in the company.

“Share incentive schemes are generally seen in a positive light for certain organisations where long-term value and sustainability is put ahead of annual target-focused cash incentives,” says Killoran.


There are Revenue Commissioner-approved share plans, such as Approved Profit Sharing Schemes and Save As You Earn Schemes, and there are share incentive schemes which do not require Revenue approval, such as share option schemes, restricted stock unit schemes and restricted share “clog” schemes.

“Share incentive schemes can be tailored to the specific needs of the business, the tax profile of the management team and the objectives of the company. Revenue-approved share schemes are less flexible than unapproved share schemes as they impose a number of conditions which make such schemes unattractive for most SMEs, such as that they must be offered to all employees,” says Killoran.

Unapproved share incentive schemes can be more flexible and still be tax-efficient. They include growth shares, restricted shares or non-equity instruments.

Killoran says when it comes to a merger or acquisition of the business in the future, it is important that the employees and the company consider how the employee share incentive scheme will be impacted by the future sale.

“If a share option scheme is in place and the company is going to be sold, a few issues can arise. Will the employees be allowed to exercise their options and sell their shares as part of the deal? Or will the employee’ options be rolled over into options in the acquiring company? Maybe the employees will receive a cash payment for the cancellation of their options? There are different tax implications involved in relation to each of these issues, both from the perspective of the employee and the employer.”

Rewarding and incentivising key people also makes a business more scalable, says Eamonn Hayes, managing director of Capnua. It is particularly useful in private equity-backed management buy-out scenarios.


“It means that the people who are key to the business are being rewarded from the sale of the business, and that is very handy for private equity transactions,” he says.

“It enables private equity MBOs to happen because if the critical people – typically the senior management team – have equity, they are putting that equity on the line too, and private equity funds see that as commitment because it means they are investing alongside one another. And it facilitates the onward transfer of the business because they are far more aligned when there is participation in equity.”

He says the key is to ensure you are incentivising the right people.

“From a human perspective, people are always keen to reward people who helped get a business to a particular place. But equity ownership shouldn’t be for rewarding what has already happened, it should be a driver of what is going to happen. It should be a forward assessment. Incentivising ‘future’ people is where we see equity ownership as really powerful,” says Hayes.