Why would a company give employees shares?

by | Jun 29, 2024 | Blog, YBL Blogs

Why would they, indeed?

Employees shares are an effective tool in your toolkit. They can successfully both incentivise and reward your team. Share options can also enhance how committed to your business your team is. They’re also useful to attract and retain top talent. In today’s competitive business landscape, it’s crucial to seek innovative ways to enhance employee motivation, attract top talent, and drive long-term company growth.

Employee Share Schemes come in several variants:

  • Share options – Employees are granted the opportunity to purchase shares in the company at a predetermined price in the future, regardless of any subsequent increase in share value.
  • Share awards – Employees receive shares as gifts, typically held in trust for a specified period.
  • Share purchase schemes – Employees are provided the chance to buy shares at a discounted price.
  • Phantom share options – Employees are offered rights to cash payments based on the value of the company’s shares.

Employee share schemes are sometimes known as LTIPs – long term incentive plans – Let’s look at why you might want to offer your employees shares in a little more detail.

Retaining top talent

Offering shares to employees can be a valuable tool for retaining top talent within your business. Employees who are shareholders are likely to feel a stronger sense of loyalty and commitment to your company. This approach reduces turnover rates and retains key individuals who play crucial roles in your business’s success. Retaining key members of staff is much more cost-effective than finding new team members.

Enhancing employee motivation

Employee share schemes serve as powerful motivators by aligning the interests of employees with those of your company. When employees have a stake in the business’s success, they are more motivated to work towards common goals and contribute to its growth.

Attracting new talent

In addition to retaining existing talent, employee share schemes can also attract new talent to your business. The opportunity to become a shareholder can be an attractive incentive for prospective employees, particularly for those who are seeking opportunities for long-term growth and investment in their careers.

Creating a culture of ownership

Employee share schemes create a culture of ownership and accountability within your company. When employees have a financial stake in the company, they are more likely to take ownership of their roles and responsibilities. You’ll find an increase of productivity and performance across the board.

Aligning interests

By offering shares to employees, you can make sure that the interests of employees are aligned with those of shareholders and stakeholders. This alignment encourages employees to make decisions that are in the best interests of your company as a whole, driving sustainable growth and profitability.

Read this article before you give shares away: Don’t give your employees shares in your business without doing these things first.

The importance of a shareholder agreement

shareholder agreement is a legally binding contract among the shareholders of a company. This agreement outlines the rights, responsibilities, and obligations of each shareholder and often addresses key issues related to corporate governance and decision-making. These agreements are crucial for maintaining clear and harmonious relationships among shareholders and ensuring the smooth operation of the company. Shareholder agreements should be carefully drafted with the advice of a legal professional to align with the specific needs and goals of the company and its shareholders.

If you’re considering giving shares to employees, contact me today before you do for your free, no obligation chat. It’s essential to get a shareholder agreement in place to protect both yourself and your business.

Call: 0116 3667 900
Email: steven@stevenmather.co.uk

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