Your Money: It's not just the fat cats who get to lick the cream

Fat cats have been a popular target for censure, particularly over the issue of executive share options. But many companies also allow their lesser employees to benefit from share options and similar share incentive schemes.

Proposals last year to curb some of the perceived boardroom excesses ran into trouble when it was found that the average income of those who benefited from share options was just pounds 17,000 and included the likes of Asda checkout workers.

The idea is to motivate staff to take an interest in, and work harder for, their company, and share schemes can be a valuable perk. Many people would prefer to have an increase in the basic salary, but if a share scheme is available, you might as well take advantage. There is no cash alternative to the perk and such schemes allow you to enjoy the benefits of a stock market investment without the risk.

One of the more popular structures is Save As You Earn (SAYE) share option schemes. These are based on a savings plan that is attractive even if you decide not to buy the shares. You put away a set amount each month, which can range from pounds 5 to pounds 250, in a bank or building society account. At the end of a fixed period, which can be three, five or seven years, you can use the money to buy shares in the company you work for at a predetermined price, set at the time the option is given. This price can be up to 20 per cent less than the market share price.

If the exercise price of the option is pounds 2 and the shares are trading at pounds 3 when the option can be exercised, you stand to make a profit of pounds 1 a share if you buy the shares and sell them immediately. Alternatively, you could buy the shares and hold them in the hope that the price will rise further.

Any profit you make when selling the shares is liable to capital gains tax. But the annual capital gains tax exemption, currently pounds 6,300, will remove any liability for most people. Furthermore, you can transfer shares up to a value of pounds 3,000 to a single-company PEP within 90 days of exercising your option. This makes any gains and dividends tax-free.

It is possible that the price at which you can exercise your option to buy shares is higher than the market price, in which case there will be no point in exercising your option. Or you may decide you do not want to buy shares. Your savings will still have benefited from a tax-free interest-type return that works out at a healthy 5.26 per cent a year if you save for three years, 5.53 per cent over five years and 5.87 per cent over seven years.

A company share option plan is a variant that requires no commitment to regular savings. The company simply gives you the option to buy shares in it. If the scheme is approved and meets Inland Revenue requirements, you pay no income tax on the value of the option if it is exercised between three and 10 years after it is granted. But there could be a capital gains tax liability on any profit you make when you sell the shares. Shares to the value of pounds 30,000 can be obtained under this scheme.

The scheme that can require the least input from employees is an Inland Revenue-approved profit sharing scheme, under which companies simply award free shares. The annual value of shares can be up to pounds 3,000 or 10 per cent of your salary if higher, to a maximum of pounds 8,000. Distribution of shares could be related to company profit, or you may be offered free shares on a "buy one, get one free" basis. Once awarded, the shares are held in trust and there should be no income tax to pay provided you do not withdraw them for at least three years. But there is a possible capital gains tax liability on any profits you make on the sale.

In practice, most listed companies offer share schemes to all employees but many are limited to executives. "Companies have been much slower to offer schemes to all staff," says David Senior, the director of company services at ProShare, an organisation that aims to promote wider share ownership. "But it's quite wrong to say that only senior executives need incentives. What goes for them goes for all employees in a company."

Schemes that encourage employee share ownership for all employees seem safe from an incoming Labour government. John Monks, general secretary of the TUC, will present the ProShare awards for the best schemes later this year.

o Next week: medical insurance as an employee perk.

Suggested Topics
Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
News
newsMcKamey Manor says 'there is no escape until the tour is completed'
Voices
Hunted: A stag lies dead on Jura, where David Cameron holidays and has himself stalked deer
voicesThe Scotland I know is becoming a playground for the rich
News
people
PROMOTED VIDEO
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
newsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
film
Sport
football
News
news
News
people

Britain First criticised for using actress's memory to draw attention to their 'hate-filled home page'

Arts and Entertainment
A photograph taken by David Redferm of Sonny Rollins
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker