Are you an employee owned business competing for talent?

Undoubtedly the EOT ownership structure of itself can be a real competitive advantage when attracting and retaining high calibre managers, where the managers are really excited about being part of a model that wants to do the best for their employees, customers, the environment, the community, and their partners. However, the lure of having skin in the game is never far away for some managers, so this blog looks at whether EOT’s can offer something similar.

The private equity backed businesses will be recruiting on the promise that in three to five years’ time (maybe longer) there will be an exit event for managers to crystalise some if not all the capital value they have created. Salaries and bonuses are not usually the attraction but are likely to be market rate.

The downside to this model is, however, there has to be a regular churn in the ownership of the business as the Investors seek a return on their investment. This is the complete opposite with the EOT model, where the long-term sustainability of the business for its employees, customers and partners is of vital importance. So, can the talent in the business have the best of both worlds? They can, where the EOT is able to adopt an Enterprise Management Incentive scheme (an EMI scheme) and create an internal market for its shares.

An EMI scheme benefits from generous tax advantages, as the increase in value of the shares granted under and EMI option scheme can be subject to a rate of capital gains of 10%, which is significantly lower than the amount of tax a manager would pay on a cash bonus. Under the EMI scheme, share options are granted at a price agreed when the option is granted, and the exercise of the option can be subject to performance conditions which determines the number of shares the manager is able to acquire.

This way, the business can align the desire to drive performance with the interests of the manager to be rewarded financially in a tax efficient way. There are, however, some complexities with EOT structured businesses which have to be navigated, so it will not always be possible for an EOT business to adopt an EMI scheme but if it can, it will be a useful weapon in the ever-increasing battle to attract and retain the best talent.

Our EOT experts at Geldards are here to assist you with an assessment, should you wish to consider an EMI scheme.

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