Five reasons to check whether your share plan is working

In today’s dynamic business environment, companies must stay agile and responsive to changes. One critical aspect that often gets overlooked is the periodic review of employee share plans. 

Here are five reasons why companies should review their share plan arrangements.

1. Alignment with business goals

Goals and strategies can change. A share plan that was effective a few years ago might not align with your current business objectives. Performance conditions may no longer be relevant, meaning that equity awards are not incentivising necessary behaviours. Regular reviews ensure that the share plan supports the company’s mission and strategic direction.

2. Employee retention and motivation

A well-structured share plan can be a powerful tool for employee retention and motivation. However, what motivates employees changes over time. Regularly reviewing and, where needed, updating the share plan ensures it remains an effective incentive that helps attract and retain top talent.

Communication is key. If documentation has been safely filed away, gathering dust, employees may benefit from a refresher. A review of the plan offers a great opportunity to remind employees of the benefits and to provide updates on progress against any key objectives. 

3. Addressing shareholder concerns

Shareholders’ expectations and concerns can evolve. Periodic reviews of the share plan provide an opportunity to address these concerns proactively, fostering better relationships with shareholders and enhancing their confidence in the company’s management.

4. Compliance and regulatory updates

Regulations governing share plans are subject to change. Staying compliant with the latest laws and regulations is crucial to avoid pitfalls. A ‘health check’ helps to ensure that the share plan adheres to current legislative standards and best practices.

Having a clean bill of health can reassure potential purchasers and investors during a liquidity event, where share schemes are often a focus area. If issues do arise out of the review, being proactive will often present a greater opportunity to address these, which could help to avoid costly delays or price chips at exit.

5. Adapt to market conditions

Market conditions are constantly shifting. Economic fluctuations, industry trends, and competitive landscapes can all impact the effectiveness of a share plan. By reviewing the plan periodically, companies can make necessary adjustments to stay competitive and attractive to top talent.

Periodic reviews of share plans are not just a best practice but also a necessity. By staying agile and adapting plans where needed, companies can ensure their share plans remain effective and beneficial for all stakeholders.

Updates to share plans do, however, come with a health warning. Alterations to existing awards under certain tax-advantaged plans, such as Enterprise Management Incentive (EMI) share options, can result in the loss of tax reliefs. The treatment is subject to several factors, including the specific nature of any proposed changes and how the plan has been drafted. Specialist advice is always recommended before making any changes.

If you would like more guidance on share plans, please contact Kerrie Willis.