Hang on to your company's greatest asset

Once you've recruited top-quality staff, the next challenge is retaining them. Michael Snyder looks at a scheme aimed at helping small enterprises
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The Independent Online

One of the biggest challenges facing UK businesses is how to find and hold on to skilled employees who will drive their companies forward. So, how do you hang on to your key ones? An increasingly popular approach is to use the Enterprise Management Incentive Scheme (EMIS), which was introduced by the Government in 2000 with the aim of helping small entrepreneurial companies to recruit and retain high-calibre individuals.

One of the biggest challenges facing UK businesses is how to find and hold on to skilled employees who will drive their companies forward. So, how do you hang on to your key ones? An increasingly popular approach is to use the Enterprise Management Incentive Scheme (EMIS), which was introduced by the Government in 2000 with the aim of helping small entrepreneurial companies to recruit and retain high-calibre individuals.

The scheme, which is open to companies with gross assets of not more than £30m, has been designed to provide as much flexibility as possible and enable different arrangements to be put in place for each participant.

The EMIS is very effective for small and medium-sized companies. There is no income tax or national insurance due on the grant of the option at market price, and full taper relief can be achieved within two years of the date of grant. You can also attach conditions to the exercise of the options, and the shares need not be ordinary shares and can have restricted rights.

Such schemes are relatively cheap to implement, and companies receive corporation tax relief on the costs of setting up and running them. A company can also save its employees a lot of tax with an EMIS.

The schemes work by the employee being granted options – effectively, the right to buy so many shares at a certain price – either on joining the company or on reaching a certain level. If the company is sold in, say, five years, the employee would exercise the option, and then receive a share of the proceeds from the company sale. Tax on the gain would be at a maximum of 10 per cent. The employee would therefore share in the spoils along with the original shareholder/entrepreneur.

However, there are other approaches. For example, simple bonuses have long been popular incentives. Bonuses can be linked to individual or team performance. Traditionally, they have been applied to the whole company and depend on its performance (typically in the form of profits). In selecting a simple bonus scheme, a company may want to consider weightings according to levels of salary, service and sickness. It also has the opportunity to offer benefits in kind instead of cash, although there are no longer any National Insurance savings in following this route.

Companies can also offer non-cash incentives such as health insurance, gym membership, company outings, sabbaticals, increased holiday and training. The key for an entrepreneur is to ask employees what they value, as opposed to what he or she thinks they value.

Top contributors, who are not wedded to the company but enjoy working on the type of customer/project the business attracts, should be rewarded by a straightforward profit-sharing bonus. The scheme can be discretionary or linked to team or individual performance. If a company wants to make the profit-sharing scheme reasonably generous, it would be beneficial to structure it so there is some form of penalty for premature departure.

But whichever approach is adopted, executives need to ask themselves certain questions. Motivating and rewarding employees may be an obvious objective for any managing director, but it is important that those venturing into this area understand their underlying reasons for doing so.

Are they aiming to provide an incentive to work towards a common corporate goal, or are they looking to lock in the key people whose skills your business's success relies on? Based on the answer, a number of options are available. It is important to understand each employee's value to the company and what motivates them before selecting the best financial incentive. The most suitable incentive for each type of employee group could be:

* Core team – hardworking and loyal, these employees form the backbone of the company and are better offered simple discretionary bonuses

* Top talent – those members of the company who are more committed to working with exciting clients/projects than to the company, these employees will benefit more from performance-related bonuses or a profit-sharing scheme

* Superstars – your key players and your potential shareholders. These employees are vital to the future of the company, and are those who would want to contribute to developing the business long-term as owners and managers.

But, in addition to choosing the best incentive for each employee, the proprietor or executive must have a genuine interest and appreciation of the team – and let its members know it.

Michael Snyder is senior partner at Kingston Smith, an accountancy firm specialising in advising SMEs/owner-managed businesses. It can be contacted on 020-7566 4000 or via the website www.kingstonsmith.co.uk

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