Ifty Nasir, co-founder and CEO of Vestd discusses Employee Share Schemes and how they can help employers compete for top talent

If you’re a fast-growing business, one of your key challenges will be recruiting and retaining good people.

How can you compete in the job market against larger companies with well-established names, job security, comprehensive employee benefit packages and eye-wateringly high salaries?

What can you offer skilled people that would entice them to become the loyal and committed employees you need to drive the success of your business?

A company share scheme has become a popular solution to this problem.

Implemented well, it encourages potential employees to commit to the long-term success of the business, over short-term gain, so it aligns everyone’s motivations.

It is, however, a fairly complex area. There are a number of different schemes to choose from and, if you get it wrong, you can run into tax problems and can even risk de-motivating your team. This article guides you through the key considerations.


Employee share schemes are a way to share ownership of the company with your team.
Your chosen scheme needs to be tailored to suit the needs of your business and your circumstances.

Shares or options?
An employee share ownership scheme can deliver share ‘ownership’ in two distinct ways: shares and options. Let’s explore these two methods.


There are two types:

  • Ordinary shares are real shares in the business and can be given to anyone. They are typically the shares business owners and investors will hold.
  • Growth shares are just like ordinary shares but are issued at a ‘hurdle price’ that represents a small premium to the value of the company shares at that time. As such, the recipient only shares in the business’s growth in value from that point on.

The key points:

  • Shares can incur Capital Gains Tax where there is growth in value.
  • Ordinary shares can create an income tax liability if they are granted at a price less than their value at the time.
  • For growth shares, there is no tax to be paid upon issue.
  • Gives people real ownership, immediately.
  • Shares are issued in the recipient’s name.
  • Recipients can benefit from dividends.
  • Recipients can receive voting rights.


Granting options allows your employees to buy shares at a later date, at a pre-approved price. If you want to set up a tax efficient share scheme for employees (as opposed to non-employees), then in almost all cases an EMI option scheme is the best way to go.

The key points:

  • Options can be granted to anyone.
  • Options are not real shares until exercised.
  • Recipients do not get any benefits of being a shareholder.
  • Options may incur income tax liability on exercise.
  • In some cases, there is also a cost to exercise.
  • EMI options can only be granted to employees working more than 75% of their time at the business.
  • Companies need to qualify to be able to issue EMI options.
  • EMI options have a limited exercise window.

Tax implications

Employees receiving EMI options will have to pay Capital Gains Tax. However, EMI schemes benefit from a lower rate of just 10% on any gains when the shares are sold. This is why employee share schemes, and particularly EMIs, make for brilliant incentives (when compared to the tax payable on any salary uplift or cash bonuses).

EMI schemes are also cost-effective for employers, as there are a number of offsets from the scheme against Corporation Tax liability. Other scheme types don’t come close to this position and have different tax implications.

The business benefits

The research shows six business benefits:

  • Recruitment. You can offset salary for equity, to create compensation packages that match, or improve on, offers made by other more established companies with deeper pockets.
  • Retain the best talent. Share schemes are proven to increase employee retention and can help you avoid hiring costs.
  • Increase productivity and performance. Studies have shown that employees who are also shareholders are more committed to their work and contribution because they feel directly responsible for the value of their company.
  • Improve employee engagement and happiness. The more all employees feel included in the mission, direction, and success of the business, the more they’re motivated to contribute to the company.
  • Relieve cashflow pressure. Equity can be used to reduce the need for finance. Instead of paying people top rates and large bonuses, you can incentivise them via shares or options
    If you’d like to get into the detail then check out our guide to employee share schemes.

About the author:

Ifty Nasir is co-founder and CEO of Vestd, the equity management platform. Throughout his career he has built businesses and led high performing teams, and is a strong believer in the ‘Ownership Effect.’ He advises businesses on how to share equity to incentive teams and unlock value.

By Lisa Baker, Senior Editor

Senior Editor Lisa Baker is the owner of Need to See it Publishing Group, providing contract news for business and news sites across the UK. Lisa is an experienced HR writer and commentator, editing HR publications for more than 5 years.