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.