RSM’s survey: A surprising response to employee share plans

30 June 2023

RSM’s recent survey of middle market businesses found that only 18% of companies currently offer employee share plans as a means of attracting or retaining employees.

The feedback was surprising given that employee share plans are widely viewed as an effective way to attract and retain top talent. They are also key incentives for employees to support business growth, particularly where tax-advantaged share plans are used.

A recent HMRC-commissioned project evaluated companies and employees participating in either Company Share Option Plans (CSOP), Save As You Earn (SAYE) or Share Incentive Plans (SIP) and companies not registered for any of the four tax-advantaged share schemes (EMI being the other) and found that:

  • companies most commonly chose to register for a share scheme to improve staff retention, create a sense of ownership, and improve staff morale;
  • among the surveyed companies, 74% reported that offering a share scheme helped retain and/or recruit staff and 81% indicated an improvement in employment and/or business outcomes; and
  • the econometric findings suggest that operating a CSOP or SIP had a positive impact on companies’ turnover.

These findings show that employee share plans can have a positive impact on employee engagement, retention and morale. They also suggest that employee share plans have a direct impact on a business’s top line.

The research also brought out some noteworthy points for companies that didn’t utilise any of the tax-advantaged plans surveyed, summarised below:

  • companies mostly chose not to use the schemes due to concerns that employees would gain a controlling interest in the company, or thinking they did not meet requirements to use a tax-advantaged scheme, or being too small of a business;
  • 31% of businesses unaware of the schemes felt that they would be too difficult to administer; and
  • a lack of awareness of the existence of some tax-advantaged plans was evident in many businesses.

Interestingly, some common reasons for not using tax-advantaged share schemes are misconceptions. For example, it would be unusual for a share plan to result in employees having a controlling interest in a company. Also, from 6 April 2023 CSOP requirements were relaxed and all-employee plans (SAYE and SIP) can be used by many UK businesses without having to meet too many onerous qualifying conditions.

HMRC is receptive to these findings and has announced a call for evidence on all-employee share plans to simplify and improve the schemes. The government is particularly interested in understanding whether the schemes are attractive to lower-income earners and how to make sure more people can take advantage of them.

It is clear that tax-advantaged share plans are one of the tools the government has and is keen to use to drive economic growth. It will be interesting to see if increased awareness and improvements can be achieved in this space, given the benefits on offer.

Explore the benefits of an employee share plan by contacting our specialist, Simon Adams.